College student loan reform helps students, hurts lenders
Still paying on that student loan from 30 years ago? Worried about how a student from a low-income family will pay for a college education? Want to know what will happen to Pell Grants?
Emory University students walk through campus. Photo: John Spink, AJC
President Barack Obama signed into law Tuesday the Health Care and Education Reconciliation Act of 2010 — a bill in part designed to help students get and pay back loans. However, it has an adverse affect on banking institutions, which have played the role of middle man for federal loans. The government now becomes the primary issuer of loans.
Q: What does the overhaul of student lending do?
A: Basically, it cuts banks out of the government-backed student loan business. Money for the loans has come either directly from the government or through private financial institutions, which have collected billions of dollars in federal subsidies to protect against default.
Under the changes, banks will no longer act as middlemen, and all colleges and universities must switch to the direct lending program by July 1. Many already have made the switch in anticipation of the new law.
Private lenders can still make student loans that are not backed by the government, and they will continue to have contracts to service some federal loans. But the new law represents a significant change in what has been a multibillion-dollar business for the banking industry.
Q: How much money will the government save?
A: Taxpayers will save $68 billion over the next 11 years, according to the Congressional Budget Office.
Q: What will Obama do with the money? How will this affect students and their parents?
A: A chunk of the savings will go toward Pell Grants for college students — to award more grants and to provide larger amounts. Community colleges and institutions with predominantly minority populations also will receive funding.
Q: Will the changes bring down college costs?
A: Sorry, no. Obama acknowledged as much before signing the bill when he urged colleges and universities to “do their part” to hold down costs.
Q: OK, what exactly is happening to Pell Grants?
A: More than $40 billion will go toward the grants, which are targeted toward students from low- and moderate-income families. Between 2013 and 2017, the maximum award will increase to $5,975 from $5,550. The administration also expects more than 820,000 additional awards to be made by the 2020-2021 academic year because of the changes.
Some of the money will address shortfalls in the Pell Grant program that developed because students were qualifying for more and larger grants. More than 6 million students received such grants in the 2008-09 academic year, an increase of about 50 percent from a decade earlier, according to the College Board.
Q: How else will students benefit?
A: Students who have low incomes or meet certain other eligibility requirements and who take out loans after July 1, 2014, will see their payments limited to 10 percent of their discretionary income after graduation. Current law caps payments at 15 percent of income.
For students who make their loan payments on time, the government will forgive the balance after 20 years, instead of 25. Public service workers — teachers, nurses, police officers and those in the military — will see any remaining debt forgiven after just 10 years of repayment.
Q: What’s in the new law for community colleges?
A: Community colleges, which enroll more than 6 million students and are growing fast, will receive $2 billion over the next four years for a competitive grant program to provide training and education programs. The grant program was created in the economic stimulus bill enacted last year, but never funded.
Q: What about funding for institutions that serve mostly minority student bodies?
A: These colleges and universities will share $2.55 billion in additional funding over the next decade.
Q: Does anybody lose as a result of the changes?
A: Banks and other financial institutions. Sallie Mae, the biggest student lender, has about 8,500 employees in the student loan program and has said close to one-third of them may lose their jobs as a result of the overhaul. Sallie Mae still will have contracts to service federal loans.
Question for you: Do you think this will help many students? Will it make it easier for faster to pay back student loans? Do you think the process will be more or less smooth with the government running loan programs rather than financial institutions? What are the pluses and minuses?
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31 comments Add your comment
Tammy McFarland
April 1st, 2010
12:12 pm
How does this impact those of us that have been paying on student loans already? Is this for existing loans or new loans?
Rene'
April 1st, 2010
12:18 pm
I have the same questions as Tammy:
How does this impact those of us that have been paying on student loans already? Is this for existing loans or new loans?
Dawgfan
April 1st, 2010
12:21 pm
I have the same question. Does this have an effect on those in loan repayment?
Rana Cash
April 1st, 2010
12:26 pm
As of right now, the reform is not retroactive. This applies to new loans.
cisinc
April 1st, 2010
12:29 pm
So for those students in college now the message seems to be drop out and come back in 2014 because you will be under the new repayment terms. What a joy – now we get to deal with the Federal Gov’t instead of a local bank…..this has worked so well when trying to interface with Social Security and others.
Dan
April 1st, 2010
12:52 pm
So now the fed government gets to decide who goes to college…WOW!
twinmomma
April 1st, 2010
12:57 pm
This will help! Just in time for our college freshmen. The banks have been given more than enough of the taxpayers’ money in bailouts alone. Love the part where people who go into public service get a better deal. Government-run lending will work better because they’re in it to make sure we have educated, employable citizens. Banks were in it for their own greed (profits).
David
April 1st, 2010
1:01 pm
To sell this new government involvment the President had to make this seem like he was doing the students a huge favor by taking over one more part of our daily life. The real truth about the above AP Q&A are:
1.)31,000 private sector jobs will be lost.
2.)They left the 40B in Pell grants as an option of what they might use the money for. The real truth is this 68B in so-called savings is built into the healthcare bill and was given to the Congressional Budget office as part of the funding for the new HC bill. I could be mistaken but college students understand that you can only spend the money once-it cannot support the student loan programs and be used to pay for healthcare.
3.)The President could have lowered cost by an average of 1,600 to 1,700 per student if indeed he plans on using the money to help 19 million students that have student loans.
4.) Once again the President is mandating that we use the federal government for another service. As the President tours the country telling everyone how great his programs are and how much they are going to help every citizen I wonder why is not addressing the 31,000 private sector jobs that will be lost and what his plan is to help those people who will be unemployed.
Frugal mom
April 1st, 2010
1:06 pm
Still a little confused. I have a senior with 4 college offers on the table. All have offered scholarships/grants to cover everything except approx $4000. If we take out a loan for 2010-11 school year…will this be a Gov’t loan? Will her grants for 2010-11 automatically increase.
Tiff
April 1st, 2010
1:08 pm
Dan- How does that decided who goes to college?
Dan
April 1st, 2010
1:17 pm
Tiff the question and answer pretty much laid it out, the conditions for the loans are now based on social issues rather than economic issues. Also the latest CBO report, (now that the bill is passed they can factor in objective numbers rather than the spoon fed ones in the bill) any way the latest CBO report claims a loss of $52B thats right a $120B swing in about a week, anyone want to guess the over/under on it becoming a loss of $200B by the end of the year. Based on the fiscal responsibility of Government (any side) why would anyone think they are better positioned to manage this process
David
April 1st, 2010
1:17 pm
twinmomma
Banks are and never advertised to be not-for-profit organizations. The difference between Obama(gov’t) and the greedy banks as you called them the banks employ people with that greedy money. If Obama was truthful with the American public the only difference in the gov’t and the banks are that the President gets to control how that 68B in saving is going to be spent. If you had 1M to invest for your future who would you turn to for financial advice? Answer-someone with years of creating wealth and financial security or the President.
Dan
April 1st, 2010
1:20 pm
It is also hilarious how people call it reform, which implies improvement, it may be change but and it may improve some peoples life, but at the expense of others
ATL Guy
April 1st, 2010
1:22 pm
Is it just me or are Republicans the stupidiest most idiotic bunch of people on this planet? Dan above, unapologetic in his stupidity, says that the government will now decide who goes to college. Seriously?? I think you’re watching too much Glenn Beck. I have government student loans. They – THE BIG BAD GOVERNMENT – didn’t tell me which schools to go to and which classes to take. Matter of fact, the people handling the loans were the people in the school’s FINANCIAL AID OFFICE you half stupid moron. I am sick of the stupidness that you fools propagate and the lack of pushback from people that know better. Why don’t you Republicans get some common sense?
Tired of Banks
April 1st, 2010
1:40 pm
It is about time that banks start to get cut from these federal programs that just added to thier greedy bottom lines. The banks have way to much power over our lives and economy. More pople need to understand that they caused the problems that we face today and are now profitting from the intervention that they receive from the feds. No other sector received the aid of the government (our taxes). We bailed out the banks but they have not helped bail out the economy. The fed need to start a direct loan program to small business next.
Lil' Barry Bailout
April 1st, 2010
1:50 pm
Long story short…sorry, but you losers will still have to pay back the taxpayer money you borrowed. Parasites.
Lil' Barry Bailout
April 1st, 2010
1:54 pm
Hey twinmomma, maybe you can find a job with a nice company that doesn’t care about profits. Here’s an even better idea…start your own company that doesn’t intend to make a profit.
Let me guess…you went to public schools. Idiot.
GG
April 1st, 2010
2:21 pm
@ Lil Biggoted Bailout
There Are Idiots in Private Schools
April 1st, 2010
2:51 pm
Going to public schools don’t make you an idiot. Have a college degree doesn’t make you a Rocket Scientist. DUH!!!!! @ Lil Barry Bailout, the taxpayers are footing a TRILLION DOLLAR WAR that we should not be in. Where’s the anger over that? But things that should help the American Public are being criticized. I would rather my TAXPAYING DOLLARS help a student go to college, I DON’T CARE WHAT RACE than to fund a war that is hopeless & sending our kids back home in body bags.
Kelly
April 1st, 2010
2:55 pm
ATL Guy
You are so ignorant! It’s amazing you were allowed to enroll in college. The Feds are only lending the money; not processing the paperwork. You still must rely on us stupid financial aid people to do that…
I thought I was alone.............
April 1st, 2010
2:59 pm
ATL Guy you hit the nail dead on the head. It is funny how the right takes every issue and make it an issue of the government taking over the rights of the people. If Obama wielded half the power these people seem to think he has and was as maniacal as people protray him the take over would have occured during his first 100 days in office. People get over it. The will of the people is not that of the loud and wrong it is that of the people themselves. None of you speak for me and I like what is happening in this country at this time.
David
April 1st, 2010
3:22 pm
I thought I was alone…..
Then you are going to hate what happens in November.
Lil' Barry Bailout
April 1st, 2010
6:08 pm
There Are Idiots in Private Schools: The taxpayers are footing a TRILLION DOLLAR WAR that we should not be in. Where’s the anger over that?
Ask the guy who refuses to get our men and women out of Iraq and doubled down in Afghanistan, where troop deaths DOUBLED last month…your Idiot Messiah.
Staci
April 2nd, 2010
4:40 pm
WOW – a person going to school to educate themselves so they can carry more of their own weight is a “loser”.. lmao Lil Barry, who paid for your private school? Your mommy and daddy? I love it when a child of a rich parent sports a fancy car (or education) as if THEY somehow worked for it…
And the only people calling Obama the Messiah are Republicans. Isn’t it FUNNY how you morons went to bed one night (when Bush was in office) in support of the war(s) then woke up the next day (when Obama was in office) and stopped supporting it? Sorta makes your whole “support our troops” chant shallow- every death of a soldier in Iraq was some how justified, every reason to “pull out” of Iraq under Bush was shot down, now all of a sudden the war is WRONG, and damn Obama for not pulling out the troops BUSH sent to Iraq??… and lets not forget BUSH took us to war with Afghan, then dropped the ball.
Not to mention Republicans hate Muslims, but yelled and screamed in support of liberating an entire country full of them.
You people are a Colossal JOKE. You never know if you are coming or going…
Wanda Chastain
April 2nd, 2010
5:25 pm
Why is FAFSA now charging $80 just to apply?
Lil' Barry Bailout
April 2nd, 2010
6:13 pm
Hey Staci…we’re still in Iraq, still in Afghanistan, still have Gitmo open, still doing domestic spying. How’s that hope and change working out for ya? Let’s not forget the Idiot Messiah’s $1.6 TRILLION deficit for this year, which is his own proposal. Let’s also not forget the $10 TRILLION added to the national debt over the next decade, thanks to your failure of a President.
Heckuva job, Idiot Messiah!
Where's the love
April 2nd, 2010
6:26 pm
It makes me sad to read the posts on here, where people either feel they are making a difference or just venting. If you truly are upset with the way the system is working,do your best to change it by voting and contacting your representatives. And if even then you think the system is flawed, try and change the system in a peaceful, but forceful way. And if that fails, move out, but don’t be bitter to those who are trying to make their lives work in the current system.
Woods
April 2nd, 2010
6:36 pm
I read these comments and all I can say is “God help us!” The moochers and looters are starting to out number the producers.
Lil' Barry Bailout
April 3rd, 2010
7:09 am
The best we can hope for is that there’s a really good Oprah show on election day so that the parasites will stay home.
Rob
April 3rd, 2010
10:15 am
@ Wanda:
fafsa is still free. Be sure to go directly to the fafsa site at
http://www.fafsa.ed.gov or to link through your college’s financial aid site.
There are private companies that charge a fee for helping you complete and submit fafsa and some of them have website addresses very similar to the official site.
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