Archive for Wednesday, March 31, 2010

Loan changes to help students, community colleges

March 31, 2010

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President Barack Obama applauds Tuesday after signing the Health Care and Education Reconciliation Act of 2010 with Speaker Nancy Pelosi, D-Calif, second from right, and Rep. George Miller, D-Calif, right, at the Northern Virginia Community College in Alexandria.

President Barack Obama applauds Tuesday after signing the Health Care and Education Reconciliation Act of 2010 with Speaker Nancy Pelosi, D-Calif, second from right, and Rep. George Miller, D-Calif, right, at the Northern Virginia Community College in Alexandria.

— Bigger grants for college students who need them. Relaxed payment terms for students with loans. More money for community colleges and historically black institutions.

The law that President Barack Obama signed Tuesday could mean big changes for hard-pressed students and colleges as the government becomes the primary issuer of student loans. But just whom will that affect and how?

What does the overhaul of student lending do?

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.

Comments

SettingTheRecordStraight 5 years, 3 months ago

Q: How much money will the government save?

A: Nothing. The government has already earmarked for new federal spending the full amount it is sucking out of the private sector.

just_another_bozo_on_this_bus 5 years, 3 months ago

No, rather than letting the private sector suck up taxpayer money for doing pretty much nothing, it's now going to be spent on giving people the opportunity to get an education.

imastinker 5 years, 3 months ago

So a student can borrow as much as they want and it's capped at 10% of discretionary income and forgiven after ten years?

cowboy 5 years, 3 months ago

Sounds like a good investment in the future , good benefit for our vets , and a good infusion for CC programs. I'd like to see them cut the loan funding for the pseudo colleges that rip people off and provide training that is of little value , no names , you know who they are.

SettingTheRecordStraight 5 years, 3 months ago

imastinker,

You're correct. For example, a student who borrows $100,000 from the taxpayer to go to college but only has $20,000 per year in discretionary spending will end up with an $80,000 gift from the taxpayer after 10 years.

$20,000 in discretionary spending per year X a 10% cap on payments = $2,000 paid back per year $2,000 pad back per year X 10 years = $20,000 paid back in total $100,000 in debt - $20,000 paid back = an $80,000 gift from the taxpayer

imastinker 5 years, 3 months ago

I really feel like a sucker for working through college and living frugally.

imastinker 5 years, 3 months ago

I really feel like a sucker for working through college and living frugally.

SettingTheRecordStraight 5 years, 3 months ago

"...it's now going to be spent on giving people the opportunity to get an education."

Bozo, why not try writing this in the active voice, not the passive voice. The active voice identifies who is spending your and my money. Thus, the active voice would read, "...the government is now going to spend more of our money on new and expanded federal programs."

Kirk Larson 5 years, 3 months ago

The more spent on educating young people the better. Remember they will be paying for your Social Security. Anything that ups their earning power is a good investment.

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