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Bad credit loans, or student: Make your choice

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Government intervention isn’t always beneficial, but if it allows for easier access to funding for college, it should be considered.

Last week, Congress passed a college lending bill that will prevent banks and private organizations from lending federal loans beginning July 1. President Barack Obama signed the legislation Tuesday. Following the July 1 changeover, all federal student loans must be issued through a government-run loan program. The bill will provide an additional $36 billion to the Pell Grant Program, $13 billion of which will go toward reducing deficits in need-based programs.

The legislation also will increase the amount of money students can borrow, reduce yearly loan payment sizes from 15 percent of one’s income to 10 percent and forgive loans after 20 years instead of 25 years.

The passing of this legislation is a sign the government is heading in the right direction to increase the number of college graduates. The new law will allow students easier, more direct funding for college. The government is cutting out what seems like an unnecessary middleman in the form of private loan companies, which might look to make money off of students and add unneeded red tape to the lending process.

Before the bill, the government gave private lenders federal subsidies to issue federal loans guaranteed by the government. The student loan market is very lucrative, and private lenders were provided more money to entice borrowers who don’t need loans to take them out to increase their profits. It’s unclear why there ever was a need to go through private lenders with federal money. Hopefully, this bill will simplify financial aid by allowing students to directly deal with the government.

Allowing larger grant sizes is a tangible piece of evidence of the government wanting to help students receive quality higher education. Every little bit of assistance helps when it comes to paying for college, but the next step is addressing the ever-rising costs of tuition. Helping pay for the high costs of tuition is great, but working on making college more affordable is the next step.

An unfortunate effect of the bill is the loss of private sector jobs in the loan industry. Sallie Mae, the largest provider of student loans, will lose 2,500 workers due to a loss of federal subsidies. Although job loss never is desired, especially in poor economic times, it is unclear why these jobs were necessary in the first place, as it appears all they do is act as a go-between. It would be more beneficial to have workers for these private lenders to find a more useful spot in the economy.

There remains a need to be completely transparent on both ends of the spectrum. Students and the government need to keep each other informed of the inner workings of the program. Keeping the interest level low and constant should remain a focus of the government, but government officials need to run the program efficiently.

Although government intervention often is undesirable, especially when it involves cutting private sector jobs, the college lending bill appears to be one of the few exceptions.
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