The feds will now control the student loan market!!

Well, with the uproar of health care reform, few noticed that on Thursday, in the House of Representatives, a bill was passed that would make the federal government the primary lender of student loans. It now has to go to the Senate for final approval, where there is a democratic majority, so it is likely to pass. See the New York Times article below for details:

http://www.nytimes.com/2009/09/18/education/18educ.html?_r=1&emc=eta1

So what does this mean for current student loan borrowers? If they had borrowed through conventional lenders, like CitiBank or SallieMae, beginning in July 2010(if the feds can get it together by then), students will no longer have that option. The government will be the primary lender and students will now be part of the Federal Direct Student Loan Program. This is supposed to save the federal government over $80 billion dollars over the next 10 years. However, many in the financial aid community, including myself, have serious concerns as to whether the government will be able to handle the huge transition from FFELP to Direct lending without a phasing out period of time. Where are they going to come up with the volume of capital needed to run this program? Currently direct lending only funds about 27% of the student loan market. The customer service provided by the lenders and the guarantors has been exemplary in recent years. Will students and schools get that same type of service from another federal bureacratic agency? Again, time will tell and in the mean time, I will keep my readers informed of developments to this story.