We’ve been following the student loan bill–which would change federal student lending forever–for months now, and I wanted to give you a quick update as to where it stands today.

Senate Stall

Though the bill was being discussed in the House of Representatives months ago, and finally approved their version in September, it seems that the Senate is in no rush to get to it. Instead, their attention is (and will reportedly remain) on the controversial new health-care program that has been the center of so much media.

The Senate does not expect to address the student loan bill at all until the health care issue has been resolved, and many don’t expect that to happen until at least December.

Slowing the Tide of Change?

While the bill waits for Senate consideration, many in the higher education industry continue to question–or refute–the wisdom of changing the current student loan status quo.

Private lenders, who have enjoyed the opportunity to offer federal loans as well as their own private loans, are lobbying senators to reconsider the entire plan. Should the bill pass, private banks would no longer be able to offer federal student loans like the Stafford, as they would all come directly from the government.

Higher education leaders worry that Congress will not offer the money on optimal terms for student borrowing.

What Might Be

In the past, the bank-based system has allowed a certain amount of competition to form between banks, which has often lead to a happy outcome for students. In competing for student borrowing, banks have been known to go so far as to lower interest rates on the already-low federal loans rates–quite a boon for students.

Should the Senate pass this new bill, all lending would move to the “Direct Lending” program, under which students would only be able to borrow federal loans directly from the government itself. As the government would then monopolize all federal loan offerings, this would eliminate the competition that offered such helpful perks for students in the past.

While private banks would still be able to offer their own private student loans, let me reiterate that these loans should be a very last resort for student borrowers. Private student loans–which are any loans unaffiliated with the federal government–have fewer consumer protections and much higher rates, making them a risky and unfavorable first choice.

Stay tuned for more information as the bill moves forward–and thoughts about how your family may wish to proceed if it passes.

All the best,
Deborah Fox

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