No more banks in the student-loan loop.
“It’s a big change for us, for students and for families,” said Kaye DeVesty, director of Syracuse University’s Office of Financial Aid and Scholarship Programs.
Now, students will borrow or get grants directly from the federal government. That’s the new financial aid policies tacked on to the health care bill passed in March. Previously, students would choose a bank to finance their student loans and the bank would collect repayment after graduation, DeVesty said. The federal government guaranteed the loans and would reimburse the banks if the students defaulted on payment. The federal government also paid banks interest on some loans while the students were in school. And the government might buy back some loans if banks were tight on money.
By cutting out the banks as middle-man, the new law will save taxpayers $68 billion over the next 11 years, according to estimates by the Congressional Budget Office. The law changes the way schools receive student-loan money and simplified the financial aid process. It also made changes to students’ repayment schedule so they pay a smaller percent of their income and can have their loans forgiven earlier.
Part of the money saved will go toward increasing Pell Grants from $5,550 to $5,975 between 2013 and 2017, according to the White House website.
The new repayment plan will affect students who borrow after July 1, 2014. Those students will pay no more than 10 percent of their discretionary income — income minus cost of living — per year. The previous cap was 15 percent. If the borrower does not default, the balance will be forgiven in 20 years instead of the previous 25. Public service workers, such as teachers or police officers, can have their balance forgiven after 10 years.
The legislation also makes the lending process smoother and easier for schools, said Sharon Halpin, associate director of financial aid at Le Moyne College. Under the new plan, she said, students don’t have to sort through paperwork to choose a lender, their loan’s promissory notes are in one and the direct lending from the federal government makes it easier for the government and the schools to keep track of the federal loans.
“Money also goes on to their account much faster,” she said. “We don’t have to worry about lenders or waiting for paper checking. They can do their entrance interview in the morning and have the funding by the afternoon.”
For students, she said, the changes aren’t obvious. “Students are pretty unaware, for the most part,” said Halpin. “It’s all online — you don’t walk through a bank door anymore. It used to feel like you were borrowing money. Now you’re just clicking buttons on a computer.”
(Ana Yanni is a graduate student in magazine, newspaper and online journalism.)
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