Will this be the Decline of Federal Financial Aid?
According to the Wall Street Journal, a bill to break up the government’s near-monopoly in the student loan market has cleared the house and is now seeking a vote from the full house. The bill will increase privatization of education financing, and reducing federal financial aid.
This could mean that households with weaker credit scores would have fewer options to take on loans to pay for college. Unlike private student lenders, government programs like Direct and PLUS do not rely on credit scores to price loans.
There are two possible implications to this bill:
1. Unequal access to education financing for students from low-income families, and
2. There could be a sharp decrease in admissions for colleges. In 2017, around ~$95bn of $120bn of student loans came from federal PLUS loans (that’s around eighty percent!).
Limiting access to government loans could exacerbate the likelihood of default by low-income students. It will also mean that families with lower credit scores can end up paying higher interest rates.