How the federal student loan overhaul impacts students
Today, President Obama signed the Reconciliation Bill (including the student loan provisions) into law at the Northern Virginia Community College — a Virginia community college where Second Lady, Dr. Jill Biden, teaches. So what comes next?
- By signing this bill into law, bank-based lending of federal student loans will no longer exist.
- Starting July 1, all federal loans will be originated in the Direct Loan Program.
- Starting in 2014, the other provisions of this historic bill will come into play, including boosting the Pell Grant, Income-Based loan repayment options for borrowers and other programs.
In case you missed our last update, see below for more details on this historic piece of legislation and its impact on students.
Currently, two-thirds of college students take out student loans, and the student graduates with a debt of $23,000. This new law is meant to help US students better afford college and be prepared for the modern world without the burden of excessive debt.
- You will soon apply for all federal loans directly through your college. All lending from the bank-based Federal Family Education Loan Program (FFELP) will be transferred to the Direct Loan Program. Private banks will no longer lend government-backed loans to students.
- Pell Grant funding will be increased. The government will use $61 billion in savings over 10 years to help boost the Pell Grant Program and other education priorities. The Pell Grant currently helps scores of students afford and attend college.
- Student loan borrowers payments will be capped at 10% of their income. This means that the burden of debt on recent graduates will be lower as $1.5 billion will go to income-based repayment programs for those with low income.
- Increased aid would be directed to historically black, Hispanic, and tribal colleges. These schools will receive an additional $2.55 billion over the next 10 years.
Stay tuned as SimpleTuition will be watching Washington closely and providing updates continually as legislation progresses.