Students and Loaning
On March 30, President Barack Obama approved of student loan reform that would change the way loans are distributed to students from this point forward. Because so many changes have come from this new reform, which was signed into law with the Health Care and Reconciliation Act, its good for students to take a look inside to see what to expect as it takes effect.
Government Is Now Top Dog
Probably the biggest adjustment to the $68 billion student loan reform is that the government will now handle all loans, rather than allowing private lenders to get involved in the process.
In the past, students could receive both federal student loans from the government and private student loans from financial institutions. However, after a half a century of dual lending, the government has decided to intervene and become the only lender in the process.
However, you may still see private lender names in the process as the government has contracted four of the largest lenders to service the loans.
More Funding for Students and Other Changes
According to Obama and other lawmakers, because the funds will be redirected, the following will occur on the behalf of taxpayers and students:
- Save taxpayers money: Lawmakers say that by redirecting the money and making it available by only one source, $36 billion of the $68 billion will be redirected, saving taxpayers a lot of money over the next 10 years.
- More funds for Pell Grants: Another major adjustment is the increased funding for Pell Grants. It was no secret that Pell Grants would have been in trouble if the student loan reform had not passed. But now that it has, students will eventually have access to as much as $6,000 instead of $2,150 per student had the overhaul not passed.
- Smoother origination process: Students will likely see a smoother process for getting their loans because now. Instead of venturing to private lenders, students will simply go to their schools financial aid office to handle everything.
While these adjustments are huge, there are plenty of other changes that have taken effect as a result of the overhaul.
Income-Based Loan Repayment Program Expanded
Another change that came with reform is the expansion of the income-based loan repayment program. As a result, current repayments that are capped at 15 percent of a borrowers income will be capped at 10 percent of income.
In addition, if a borrower keeps up payments over time, the entire balance will be forgiven after 20 years. Those who choose student loan consolidation will also be eligible; however none of this takes effect until after 2014.
Changes for Community Colleges and Minority-Based Schools
Another interesting change in student loan reform is funding for community colleges. According to the new reform, community colleges will receive $2 billion over the next four years to help fund a competitive grant program that will provide training and education programs.
In addition, those schools that serve mostly minority student bodies will be share in $2.55 billion in additional funding over the next decade.
How Will Student Lending Work In the Near Future?
It seems that changes to the student loan reform actually took effect the day Obama signed the bill since some universities have already told students to get a new promissory note for their student loans. However, it has been reported that the official changes will take effect July 1, 2010.
Its good to know that you can still get a loan from a private lender if youd prefer, but it wont be backed by the government, meaning it wont have the same terms and conditions as the federal student loan and you wont be able to take advantage of the income-sensitive repayment program.
With college tuition increasing by as much as 30 percent for the 2010 and 2011 school years, having such major changes to the student lending process could potentially help students in need.
However, if youre looking for a school to attend in the coming years, it doesnt hurt to look for great schools with low tuitions to help make funding easier. That way, you would owe less after graduating.
