Student loan overhaul crammed into Obamacare

March 28, 2010

Are Feds robbing Peter to pay Paul? - Student loan overhaul crammed into Obamacare

By J.D. Wyczalek (why-zall-ick) founder of

The big buzz is the health care bill, the Reconciliation Act of 2010 aka Obamacare. Packed tightly into those 2000 plus pages of convoluted lawyer-speak is the Student Loan Overhaul Proposal or SLOP for short.

The card shuffling begins with the call to end those evil banks stealing our money through commissions, fees and whatever else they can get their paws on. Without the banking industry money would not move from hand to hand keeping our economy moving.

The call to end private origination of federally backed student loans made by banks (No more commission for selling federally backed student loans) is their key selling point. The estimated savings from this is $68 Billion.

But are private banking institutions completely out of the picture? The answer may surprise you, no. Banks can still compete to service student loans, so they will get paid on the backend instead of through the entire process, cutting into their profits which could lead to more layoffs.

Desert Hills Bank here in Arizona is the latest casualty in the banking fiasco. Experts estimated 30,000 bank related jobs will be lost to the already teetering banking industry, as a side dish of this plan.

On the bright side an estimated $10 Billion would go to help poorer students and increase Pell grant monies. By 2017 the maximum annual dollar amount of Pell Grants would increase to $5,975. Currently Pell Grants are capped at an annual maximum of $5,350. Pell Grants would also be tied to inflation, adjusting accordingly.

Of the $68 billon proposed savings over the next 10 years (original estimation of savings was $89 Billion, we’ll see what it actually turns out to be in the coming months and years), $10 Billion would go to boost Pell Grants and $9.1 Billion would be redirected toward the health care plan.

Changes are to go in effect July 1st. Colleges & Universities are nervous that this is too fast for them to make the transition from the old way to the new way. Is one and a half months enough time for colleges to make this transition before the new school year starts? Looks like there will be a lot of over time in those offices to deal with this chaos.

With this change, will the Feds be shooting themselves in the foot trying to get national health care while mortally wounding the already limping banking industry as a side lash from student loan reform?

The key take away point is parents and students need to take the bull by the horns and not just casually apply to college without first exhausting every resource to maximize the amount of financial aid. Graduating with excessive student loans will put a huge burden on our children.

The question remains, are the Feds robbing Peter to pay Paul? Time will tell.

J.D. Wyczalek (why-zall-ick) is the founder of, Arizona’s premier college planning firm. His mantra is to help make college affordable by helping with student positioning and helping parents understand how to capitalize legally on the financial aid system.

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