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Changes coming to student loan industry?

After years of operating in a favorable political environment, student loan companies woke up November 8 knowing that changes in Washington would probably mean trouble for their industry, which has enjoyed a close working relationship with Congressional Republicans (thanks, in part, to their sizable campaign contributions to key GOP lawmakers).
The Democrats are promising that one of their first acts come January will be to cut interest rates on federal student loans in half — from 6.8 percent to 3.4 percent for many loans — and to raise the maximum Pell Grant by more than $1,000. Davis said the interest rate cuts are likely to pass through Congress and, if widely supported, would unlikely be met by a presidential veto.

“There’s a heavy symbolic importance for Democrats, and it’s going to happen in the first 100 days because it has political cachet,? Davis said.

Kennedy has said he plans to reintroduce legislation that would provide incentives to colleges that switch to the direct lending program. He is also proposing to cap a borrower’s college loan payments to no more than 15 percent of a family’s income.

The U.S. House of Representatives leadership plans to take up similar legislation, the Student Aid Reward (STAR) Act, introduced last year by Rep. Tom Petri (R-Wisc.) and Rep. George Miller (D-Calif.), incoming chairman of the House Education and the Workforce Committee. The bill aims to increase spending on Pell Grants and reduce the deficit, in part by giving colleges incentives to switch with no added taxpayer cost. Kennedy has said that the STAR Act would promote competition between the FFEL program and the direct loan program and would encourage colleges to pick the less expensive choice.

Read the whole story on Inside Higher Ed.