Better borrowing; New student loan rules will save billions for the federal government and help students get more aid

As the U.S. House of Representatives passed what is being touted as a historic landmark for health insurance reform Sunday, another reform was included that will have a far larger benefit for college students.

The change eliminates private lenders from the federal loan process, which means students can borrow directly from the U.S. Department of Education when taking out loans to pay for college.

This will save billions in federal dollars that were used to subsidize loans made by private lenders.

While the difference in interest rates on the loans will be negligible, much of the money saved and the revenue generated will go directly back to education, including the Pell Grant.

“There’s going to be a huge shortfall in the Pell Grant,” said Haley Chitty, director of communications for the National Association of Student Financial Aid Administrators. “Much more people are eligible with the state of the economy.”

Chitty said he feels that the savings from the bill will shore up this shortfall.

So in the future, UNC students could be seeing larger financial aid packages.

Of course, using the arm of the federal government to divvy out loans will not create the price deflation and level of service that the private sector provides.

Steve Brooks, the executive director of the N.C State Education Assistance Authority, said that his non-profit offers more auxiliary and financial education services than the federal government could.

But the credit crunch over the past several years has dried up the capital that private lenders have been using to provide loans.

Thus, the private sector cannot provide the kind of discount interest rates that it used to.

And taking profits out of the educational equation is well worth the costs of a few services.

Speaking more broadly, private lenders simply shouldn’t be making money off education if it can be helped.

Revenue generated should go back to ensuring equal access to education, which is exactly what this program does.