Reconciliation Bill: Obama Student Loans Program

obama student loans program

March of 2010 was a busy time for legislators in the United States. In addition to passing a budget reconciliation bill, legislators also passed bills that reformed health care (though that process is still in flux) and the student loan system. While the health care overhaul part of this work dominated the news coverage and will remain a political issue for quite some time, the bill dealing with student loans could have an even bigger impact on people hoping to get a degree in the years to come. The bill might even help people who have already graduated. Because we wouldn’t want you to read through the bill yourself (not that you would, of course), we have the Cliffs Notes version below, so you can learn how your college financing might change.

Different Costs

costs

In the past, Congress has dictated the interest rate on federal student loans, which has usually resulted in year-to-year changes in interest rates, and thus the policy has caused some uncertainty for students. It was hard to know, from one year to the next, how much new loans might cost, and if the government officials couldn’t agree on a fee, their loans might be delayed. The newer bill ties the interest rate to the financial markets¾specifically the yield of 10-year Treasury note, a low-risk government security sold by the government and banks¾so no haggling is required. In addition, the amount a student agrees to at the beginning of the loan is the amount that student will pay through the life of the loan. There are no surprises.

In 2013, Fox News reports, undergraduates will save an average of $1,500 on interest, all due to these changes. If the Treasury note saw wild fluctuation and its yield worsened, students would wind up paying more for their loans¾but the economic conditions that would cause the Treasury note to perform very poorly would have far broader and more alarming consequences for the national and global economy, so hopefully this will not happen.

More to Come

Sweeping legislation like this can be hard to understand, and it’s not uncommon for parts of the change to appear in the months or even years that follow the bill’s signing. It’s clear, however, that federal loans aren’t the same, compared to years past, and that at a high level, students could really benefit from the revisions.

 

 

Student Loan Repayment and Financial Problems