The Student Aid and Fiscal Responsibility Act, which was part of the healthcare reconciliation bill that was passed this past March, will alter the way that students take out loans to pay for their college education. Despite significant changes as a result of this new legislation, the current UR federal loan administration system will allow UR’s loan process to remain virtually the same.
‘The changes that will begin on July 1 will affect almost no current UR students while they’re undergraduates here, because UR has been a Direct Loan institution for many years,” Dean of Admissions and Financial Aid Jonathan Burdick said.
The Student Aid and Fiscal Responsibility Act is aimed at facilitating future students’ lending processes as well as saving the U.S. government large sums of money.
Starting July 1, the bill will eliminate private lenders from federal student loan transactions by discontinuing subsidized payments to private loan suppliers.
The bill will also end the Federal Family Education Loan Program (FFELP), which was created between the government and private banks by converting all previous FFELP institutions to government Direct Loan programs. This means that students will have a direct contract with the government when they receive their federal loans, and students will not have the option of seeking private loan providers.
The government will provide the same interest rates and fees determined by the financial aid application.
The advantage in this new process is that time and cost will decrease for the students because instead of searching for a private lending company, the students will automatically look to the government.
The law will also accommodate students who borrow after 2014 with a monthly repayment schedule capped at 10 percent of their income, as opposed to the 15 percent policy that is currently in effect.
Unfortunately for current students, the bill is not retroactive and will not grant the same repayment opportunities for those who take out loans prior to 2014.
Those who qualify for the federal Pell Grant will witness an increase in the current maximum awarded amounts from $5,550 in 2010 to $5,975 in 2017, which will also be adjusted to increase to suit the costs of living, starting in 2013.
It is expected that the bill will allocate $36 billion in Pell Grants over the next 10 years.
The bill also allocates $2 billion in grants to community colleges and $2.55 billion to minority and historically black colleges.
This total of $4.55 billion is aimed at helping minority students in attaining high graduation rates and also improving the educational quality of these institutions.
‘At some point down the road, if President Obama Administration’s savings estimates, after making Direct Loans the universal standard, are correct, future lower-income UR students may have better guarantees of funding for the full Pell Grants for which they’re considered eligible,” Burdick said. ‘Again if the savings are real, future UR transfer students may have earned benefits from planned investments in community colleges.”
The bill also invests $750 million to promote support for students with college application, college retention and financial literacy programs.
According to the Congressional Budget Office the bill will save the government $61 billion over 10 years they will save the money from not having to pay subsidies to private banks.
All in all, this will help reduce the deficit by $10 billion.
Students have mixed reactions regarding the passing of this bill.
‘I don’t know how those changes will impact me individually,” freshman Matthew McIntyre said. ‘It sounds like a lot of scattered spending; a couple of billion here, a couple of billion there. I wonder how much these are going to help the bigger picture.”
Overall, the bill does not seem to propose many changes for current UR students, these benefits in repayment schedules will accrue to those who borrow after 2014.
‘I think for most of us a loan for school is a straightforward thing, and we don’t give a ton of thought to whether it comes from a bank or the government,” Burdick said.
Radovani is a member of
the class of 2012.