Thursday, September 17, 2009

The Student Loan Bailout Cometh

Even as we watched the Federal Government bail out the banking and housing industries due to the rash of subprime lending that took place, many were speculating that the next industry to be bailed out would be the student loan industry. Well, it's on its way.

In something of a sidebar statement over at Patriot Room, Bill Dupray mentions that, while on a blogger's conference call with members of Congress, "there is a debate in the House tonight to eliminate the private student loan industry and have the federal government be the sole source for college tuition."

After I pulled my jaw off the floor, I hit Thomas and did some searching. While they may be debating it in the House, a bill is already in committee in the Senate that would appear to offer what amounts to a nationalization of student loan debt. The bill is S.1541, a bill introduced by Senator Sherrod Brown of Ohio, "A bill to amend title IV of the Higher Education Act of 1965 to authorize private education loan refinancing under the Federal student loan program."

Pertinent information is as follows:


(a) In General-

(1) AUTHORITY- The Secretary shall carry out a Private Education Loan Debt Swap program in accordance with this section.

(2) AVAILABILITY OF FUNDS- There are hereby made available, in accordance with the provisions of this section, such sums as may be necessary to make loans under this section through refinancing to all individuals eligible to receive private education loan refinancing under this section.

(3) PRIVATE EDUCATION LOAN- In this section, the term 'private education loan' has the meaning given the term in section 140 of the Truth in Lending Act (15 U.S.C. 1650).

Note the ever important wording that "such sums as may be necessary" are "hereby made available." There is no discussion of how this bill will be funded.


(b) Eligible Debt Swap Loan Borrower- An individual shall be eligible to receive private education loan refinancing under this section if the individual--
(1)

(A) was, at any time after July 1, 1994, eligible to obtain an unsubsidized Federal Stafford Loan under section 428H for a period of undergraduate or graduate enrollment;

(B) incurred at least 1 private education loan for such period of enrollment;

(C) is not enrolled in an eligible institution on at least a half-time basis;

(D) remains indebted on at least 1 private education loan eligible for refinancing under this section and--

(i) has never obtained an unsubsidized Federal Stafford Loan under section 428H;
or

(ii) has borrowed an aggregate amount under the unsubsidized Federal Stafford Loan program under section 428H that is
less than the maximum aggregate amount indicated under section 428H(d) for loans
first disbursed on or after July 1,
2008;

(E) is not in default on a loan made, insured, or guaranteed under this title;

(F) has made not less than 2 consecutive payments on the private education loan to be refinanced and is not more than 90 days delinquent on such loan; and

(G) has not previously obtained refinancing under this section; or

(2)

(A) was, at any time after July 1, 2006, eligible to obtain a Federal PLUS Loan under section 428B for a period of graduate or professional enrollment;

(B) incurred at least 1 private education loan for such period of enrollment;

(C) is not in default on a loan made, insured, or guaranteed under this title;

(D) has made not less than 2 consecutive payments on the private education loan to be refinanced and is not more than 90 days delinquent on such loan;

(E) does not have an adverse credit history; and

(F) has not previously obtained refinancing under this section.

Essentially this makes anybody who has taken out a private loan for college since 1994, up until now, that is in repayment, eligible to refinance their loan through the federal government, so long as you have not completely blown them off altogether.


(c) Refinancing Under the Debt Swap Loan Program-

(1) IN GENERAL- The Secretary shall refinance or make a payment on a private education loan in accordance with this subsection for an individual who is eligible for private education loan refinancing pursuant to subsection (b).

(2) TYPES OF LOANS THAT SHALL BE REFINANCED- A private education loan is eligible to be refinanced under this subsection if the loan was incurred--

(A) after July 1, 1994, and before July 1, 2010; and

(B) to pay the cost of attendance for enrollment in an eligible program at an institution of higher education eligible to participate in programs under
this title.

(3) LOAN LIMITS- The maximum amount of a private education loan that may be refinanced under this subsection is--

(A) for an individual described in subsection (b)(1), an amount equal to the sum of unpaid principal, accrued interest, and late charges of all private education loans eligible under paragraph (2) incurred by such individual not to exceed the maximum aggregate amount of unsubsidized Federal Stafford Loans under section 428H(d) for loans first disbursed on or after July 1, 2008, applicable to an undergraduate student under such section if the individual incurred such loan to enroll in an undergraduate program or applicable to a graduate student under such section if the individual incurred such loan to enroll in a graduate program, less any amount previously borrowed by such individual pursuant to section 428 or part D; and

(B) for an individual described in subsection (b)(2), an amount equal to the sum of unpaid principal, accrued interest, and late charges of all private education loans eligible under paragraph (2) incurred
by such individual, less any amount previously borrowed by such individual pursuant to section 428B for such period of enrollment in a graduate or professional program.

(4) INTEREST RATE- The interest rate for a private education loan refinanced under this subsection shall be--

(A) for an individual described in subsection (b)(1), the same interest rate applicable to an unsubsidized Federal Stafford Loan; and

(B) for an individual described in subsection (b)(2), the same interest rate applicable to a Federal Direct PLUS loan.

Again, here we are with more bread and circuses. You get to refinance any private loan you've taken, through the federal government, at rates equal to those of Federal Stafford or Direct PLUS loans. Pretty sweet deal for someone like me, with private loans in repayment at the 8% - 15% range. Pretty sweet deal for the banks that have given those loans to people that have no way to pay them. Pretty sweet deal for the Federal Reserve, who will just print off another couple hundred billion dollars to fund this bill, and then collect the interest on loaning that money to the government. Not too sweet a deal for you and me as taxpayers, though, once the tax hike hammer falls.

UPDATE: Did some more digging on Thomas and it looks like the House version of things is HR 3221, the Student Aid and Fiscal Responsibility Act of 2009. More after I've had some time to dig into that one.

UPDATE: HR 3221 passed the House today at 2:16 PM EST.

UPDATE: More info on HR 3221 here.

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