here’s been quite a bit of scandal and questionable business practices in the student loan industry in the last several years. Many banks have been caught giving kickbacks to schools for sending their students to get student loans with said banks. Others are unhappy about the jump of interest rates to Stafford loans to nearly 7%, most of which went into the pockets of the bank that fiercely lobbied for the legislation to pass. The democratically controlled House and Senate are now working on a plan that will distribute $5 billion to students, parents and taxpayers who were wronged by the shady business practices of the student loan industry in the last several years.
The plan contains a number of different provisions which will be beneficial to students that will be phased in over the next few years. Perhaps the most immediate benefit to students is that the interest rate on student loans will drop from 7% to a just over 3% in the next few years. This will make it once again be very attractive to take out student loans, even if you don’t need the money to pay for tuition. It’s very easy to earn a guaranteed rate of return of 6% on the money you take out, make your payment on the student loans and pocket the difference.
Another major provision in the bill is that there will be new procedures for PLUS loans which are offered to parents to help pay for their child’s education. The new rules will force banks to bid against each other for the right to offer student loans in each state. This means that the bank that can provide the best deal to parents will be the one with the right to offer PLUS loans in your state.
Congress is also planning on creating a loan forgiveness program which will give $4,000 in debt forgiveness to any math and science teacher that teaches in a “high-needs” public school. In addition, members of the military, law enforcement, firefighters, nurses, public defenders, librarians, and early childhood educators will be granted full federal loan forgiveness after a decade. This means that their entire balance will disappear if they make their minimum payments for a decade.
Instead of borrowing even further to pay for this plan, Congress has decided to do something a little bit different. The banks which made very questionable business practices and played crony-capitalism will actually be the ones funding this bill, so not a dime of it will be coming from tax-payer coffers.