Durbin Touts Federal Student Loan Consolidation in Champaign Visit

US Senator Dick Durbin says an overhaul of federal student loans will end years of students having to pay back a costly bank subsidy.

In a visit to Parkland College Thursday, Illinois' senior senator met with recipients of Pell Grants, a program that will add more than 20-thousand recipients in Illinois as the result of the overhaul. Durbin says the loans haven't kept pace with the cost of tuition, but they'll be increasing in value under this measure.

The overhaul also cuts out commercial banks and other lenders from the loan process. Durbin says the 45-year old loan program carried no risk to banks -- and they'd be paid in full -- even if a student defaulted on a loan:

"So banks were being given this opportunity to add to the interest rate on student loans in a risk-free environment. That is known in most circles as corporate welfare," Durbin said. "It cost us as a nation $8 billion a year that we were giving to banks and they were adding to the cost of student loans all around America. Students now struggling to pay back their student loans are now struggling to pay back this bank subsidy."

Federal student loan dollars will now be shifted to the direct loan program. For current 10-year loans, a person making $30,000 annually would have to pay $460 a month.

When the overhaul takes affects in 2014, Durbin says that amount will be reduced to just over $100 a month - and no more than 10% of someone's annual income when the program is fully implemented.