Private Student Loans

As Congress struggles to agree over what is best for health care, they have another agenda to worry about that could affect millions of college students in 2011: student loans. Currently, an overhaul for student loans is being debated between Democrats and Republicans in Senate and President Barack Obama warns that if it isn't passed, a lot of students may have to forgo a significant amount of student aid, including their Pell Grants, when seeking college funding.

What's In theStudent Loan Overhaul?

If you're not familiar with the student loan overhaul, here are some elements worth knowing:

• Private lending would be eliminated: Private lenders wouldno longer be involved in the origination of student loans. Instead the Education Department would become the sole provider of loans through the government-backed program.
• Hired companies would service loans: Instead of allowing private lenders to be involved, the government would hire companies to service loans as well as track down the borrowers who fail to pay.

Removing private lenders from the student lending process, according to the Obama administration, will save $87 billion over the next 10 years and allow the government to add more to the pot for Pell Grant distribution, which offers free money to low-income students thatdoesn't require repayment.

Pell Grant MiscalculationPartly to Blame for Recent Funding Problems

The student loan overhaul will be a big deal in making sure that students get their college funding for the 2011 school year because private lenders have slowed their lending process since the financial crisis and now it's is largely up to the government to make sure students receive aid.

However, now the overhaul holds even bigger stakes since a miscalculation last year affected future Pell Grant availability. Thegovernment accidentally gave away too much money last year when distributing a max of $5,300 in Pell Grants rather than the original max of $4,800. Because nearly 800,000 more students applied for aid than the year prior, the government's student aid budget hit a $19 billion deficit.

So now, if the administration is not able to pass the student lending overhaul, the Pell Grant's ceiling will forcibly be lowered to $2,150 for the 2011 school year to make sure everyone has access to money.

Why the Health Care Overhaul is Crucial to the Future Student Loans

Because Republicans oppose the student loan package, the only way for it to pass in the Senate is for it to be combined with the health care package under a fast-track procedure known as reconciliation. Under the reconciliation, only 51 votes are required to pass instead of 60.

However, combining the two efforts hasn't been an easy one since some Democratic lawmakers have suggested dumping the student loan legislation in order to move the health care bill through. If this is done, this could mean that student loans and overallcollege funding could be in jeopardy.