Recent Changes in Student Loans: “Losing the Middleman” | College Made Simple

A change in rules and subsidies means students will be dealing more directly with the government.

When the Health Care Reform bill was passed last year, few people noticed one particular thing: The government changed the way student loans work.

While most are hailing the new program as an improvement, there are some drawbacks. Let’s take a look.


The government has cut out all subsidies to private banks making Stafford loans – instead giving out the loans itself.

This means a few things. For one, it’s saving the government all of that subsidy money, while increasing revenue through receiving interest payments itself. The Obama administration calculated savings at $60 billion over 10 years.

That also means that there will be more money available to give out as grants. Indeed, the cap on Pell grants are now going to be linked to inflation – so, in a decade’s time, they should be almost 10% larger than they are now.

Loans are also being locked in at lower guaranteed rates – no more than 6.8% going forward. For graduate students, the rate is capped at 7.9% – compared with the 8.5% some private banks offered under the previous system.

What’s more, the government is going to be more flexible when being repaid – no payment plan will exceed 10% of a graduate’s income. In addition, the government is more lenient in accepting applications.

Finally, the entire system has been simplified. Rather than shop various banks for the best Stafford loan, you simply go to the government, and pay whatever interest rate you qualify for (the needier the student, the lower the interest rate).


While some banks would aim to get every possible penny, others offered discounts to students. A savvy shopper could sometimes find a great deal.

Those are gone. The new program is one-size-fits-all, so there aren’t any deals or discounts available.

The program itself is slightly riskier as well. It used to be that banks and the government would share the risk – true, the government guaranteed 97% of the value of a loan, but the bank still had a share.

Now, the government bears full responsibility. That, coupled with more lax standards for loans and lower interest rates for bigger risks, could potentially lead to problems in any sort of financial crisis.

Presumably, Uncle Sam has deep enough pockets to cover any problems. But, given the current cost-cutting atmosphere that now prevails, you never know.

In addition, should a different administration decide to change the rules, there won’t be many alternatives. Again – you can no longer shop banks. You’ve got the one stop – the government.

In all, the majority of students won’t notice a big difference. Some fringe candidates who would have been refused before now will get loans. Payment plans will take a smaller chunk of a graduate’s income for most. And, should a series of crises affect the budget, students might see greater fluctuations than they would have under the previous system.

And, on the whole, this could be a minor change for the better – if only because Pell Grants will go up, even as the government spends less on grants and loans (thanks to savings on private subsidies). More money will go to students, and less to middle men.

At least that’s what they’re saying will happen…

To your successful college pursuits,

Scott Weingold


Related Articles:

The Student Loan Debt Bubble

How to Get a College Loan Despite Bad Credit

How to Get a Student Loan “Bailout”

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Editor's Note: Scott Weingold has been ranked the #1 “College Financial Aid Expert Worth Knowing About” in the entire country by  He has co-authored the book, “The Real Secret To Paying For College. The Insider’s Guide To Sending Your Child To College – Without Spending Your Life’s Savings.” Scott also publishes a popular free online newsletter, “College Funding Made Simple" which reveals insider’s tips, methods, and strategies for beating the high cost of college.

Scott is the co-founder and a principal of the widely renown College Planning Network, LLC – the nation’s largest and most reputable college admissions and financial aid planning firm. CPN is a proud member of the Better Business Bureau, the National Association of College Funding Advisors, the National Association for College Admission Counseling, the National Association of Student Financial Aid Administrators and the Student Affairs Administrators in Higher Education.

Scott, along with his college funding advisory team, helps thousands of families throughout the country with their college planning needs and offers a series of free educational webinars and workshops on “How To Pay For College Without Going Broke In The Process!” He's been featured or mentioned in The Philadelphia Inquirer, Yahoo News,, Voice America with Ron Adams, Crains Cleveland Business, and on Cleveland Connection with James McIntyre.  Scott has published numerous articles and is a professional speaker who has addressed thousands of audiences online and offline throughout the United States.  His actionable insights and candid, open approach have earned him & his team numerous media interviews, citations, and speaking opportunities, and his free online video workshop is one of the Internet’s most widely viewed pieces in the college funding space.