Coming in the wake of recent upheavals in the American economy due to bankruptcy, foreclosure, and other financial turmoil caused by a climate of predatory lenders, American citizens, and more specifically young ones, can look forward to some relief as they try to navigate the subprime crisis effectively.
Congress recently approved a bill that would increase federal student aid by roughly $20.2 billion over the next five years.
This is good news to the large numbers of students who leave college with debt, which has become increasingly more common. In fact, the Department of Education has estimated that the average college student has approximately $19,000 in debt upon graduation.
The provisions of the bill would increase federal Pell Grants, which are awarded to students from low-income families, and temporarily cut the interest rate for federal loans in half. Also, the bill would limit monthly payments on federal loans to no more than 15 percent of students' monthly income.
Under the plan, Pell Grants would be increased from the current amount of $4,310 to an upper limit of $5,400 over a five-year time period. Additionally, interest rates would only be cut for the first four years of the loan, specifically during the time at which most recent graduates find themselves most hard-pressed to repay their debts.
Additionally, the plan introduces debt-forgiveness programs for students who choose to pursue careers in certain fields that traditionally pay lower, including law enforcement, fire fighting and teaching. Students must work 10 or more years in these fields in order to qualify for the debt forgiveness plans.
Proponents of the bill assert that it is the single largest increase in tuition funding on the federal level since World War II. President Bush had promised to veto an earlier version of the bill, but sources say he has agreed to the new version, and will sign it.
On the other side of the lending structure, the bill also cut subsidies to lenders by roughly the same, $20 billion over the same time period. In response, many banks indicated that they would no longer be able to offer student loans. For critics of the way that the lending industry has behaved in recent years, that fact is good news.
Along with companies offering subprime credit cards, the $85 billion student loan industry has been harshly criticized for its predatory tactics, using the vulnerability of recent college graduates to rack up astronomical profits over the last decade.
Recent studies have reported the devastating effects that some of the graduates are feeling, as the second-largest group of bankruptcy filings in the past year came from college-age students.