Will Loan Borrowers Profit from Education Funding Proposals?

According to President Obama, "in a global economy where the most valuable skill you can sell is your knowledge, a good education is no longer just a pathway to opportunity--it is a pre-requisite." How are we going to fund the "good education" that can make us competitive as a nation? Here is what the Obama administration has already implemented or proposes to do for education.

Recovery and Education

In the American Recovery and Reinvestment Act (ARRA) of 2009, enacted February 17, 2009, $100 billion is slated for a variety of state funding and incentives to avoid education cuts or improve education programs. An additional $30 billion is available for college affordability--increasing funding for the Federal Pell Grant program and for education tax credits. More than $30 billion has also been allocated for a variety of education services funding and school renovation, repair, and construction.

Educational Proposals for the 2010 Federal Budget

In additional to proposed general funding for education from "cradle to career," the Fiscal Year 2010 budget includes the following proposals to help postsecondary loan borrowers:

• Expand the Federal Perkins Loan program
• Stabilize the postsecondary student loan program

Expand the Federal Perkins Loan Program

Proposed changes for the Federal Perkins Loan program include:

• Increasing the number of loans offered while maintaining the current annual limits--$4000 for undergraduates and $6000 for graduate and professional students
• Increasing school flexibility to award Perkins Loans
• Offering borrower access to the same repayment plan and forgiveness options as Stafford Loan programs
• Shifting the responsibility for loan servicing and collection from the schools to the private sector

Stabilize the Postsecondary Student Loan Program

Schools participate in one of the following programs to offer Stafford Loans, PLUS loans for parents, PLUS loans for graduate and professional students, and consolidation loans:

• Federal Family Education Loan (FFEL) - students borrow from private lenders and the federal government pays subsidies to the lenders
• William D. Ford Direct Loan - students borrow from the federal government

The current budget proposal is to originate all new postsecondary education loans through the Direct Loan program, which would save the American taxpayers approximately $4 billion each year in private lender subsidies for the FFEL program. The government anticipates having the private sector service and collect the loans.

Education Should Benefit

Both the American Recovery and Reinvestment Act and the budget proposals are on the right track to provide much-needed additional funding for postsecondary education loan borrowers.

About the Author:
Judi Sandall is a graduate of the State University of New York, with a BA in English Literature. She is a technical writer and editor who worked in student financial aid for over 20 years.