You may have heard about the new U.S. health care bill passed last week, which brings new terms that impact many groups, including retirees, small businesses, and children. What you may not have heard is that students struggling to pay for college will also get some help through a federal financial aid bill tied to this new health care bill. The Student Aid and Fiscal Responsibility Act has some major changes in store when it comes to student loans, the Pell Grant, and managing college debt. While you may not see a dramatic impact at first, what does all of this mean for you?
There are three major changes that will be made to financial aid:
Students will take out student loans through their college's financial aid office, rather than private banks.
The business of student loans will be shifted away from private lenders such as Sallie Mae and banks directly to the federal government – a move appropriately named the Direct Loan Program. The banks will no longer get fees for acting as middlemen in federal student loans, and by cutting them out of the process, the government is expecting to save $61 billion over the next 10 years. As one of my favorite blogs, WalletPop, puts it: “This will help take the mystery out of getting a student loan. Where more than 1,200 banks used to issue student loans, there will now be one: the Department of Education.”
More students will have access to bigger Pell Grants.
Nearly $36 billion of the $61 billion saved will be used to boost the Pell Grant and other federal financial aid programs. The Pell Grant is available to the neediest students who might not otherwise be able to afford college. Currently, about 8.5 million students are going to college with the help of Pell Grants.
Pell Grants will increase from a maximum $5,350 this school year to $5,550 next school year and then to $6,130 by 2017-18. Colleges will have more Pell money to disburse amongst its students, meaning more eligible students could get a full Pell Grant, and more students who have been traditionally disqualified may receive portions of the Grant to help pay their tuition.
Future borrowers of government loans will have an easier time repaying them.
The Income-Based Repayment program will lower the cap on federal student loan repayments to 10 percent of discretionary income, down from 15 percent, for those who take out new loans after July 1, 2014. This move will help workers particularly in low-paying jobs. Borrowers who make regular payments would also be able to have their college debt from loans forgiven after 20 years, down from 25 years.
College affordability has become a crisis that has been wreaking havoc on people and students across the country. It is hoped that by the end of the decade the United States will once again have the highest proportion of college graduates in the world. With these reforms in place, here’s hoping that our country’s students are able to emerge as college graduates without the significant burden of college debt as well.
This is an interesting article. Thanks for sharing.
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