With many conservatives trying to repeal the health care reform bill, students might be interested to know that part of the sweeping changes to the student loan industry were within the bill enacted earlier this year. Students might also be unaware what these changes to the student loan process entails and how it might affect them individually. Here are some facts about the way student loan process will be reformed.
All Public Loans Originate With the Feds
In the past, banks such as Wells Fargo and Bank of America made federally back loans to students who needed help to pay for school. As of July 1, 2010, the federal government is no longer functioning as a middle man. This means that private banks aren’t making a profit of a such loans, or getting the benefit of having a loan default taken care of by the federal government. In the past, private banks gave such loans getting all the benefits and taking no risks. In turn, the process was very expensive for the government. The goal of the new process is that the loans are given and serviced by the federal government, cutting down on inefficiencies and expensive fees.
This change means that you will be getting contacted directly by the government with information about all your loans. This helps if you have multiple loans from multiple banks, especially when it comes time to thinking about repayment.
Student Loans Payments Will Be Restructured
The biggest change that will benefit students occurs during repayment. No matter how much money you make, your repayment will be limited to 10% of your discretionary income. This is a big change instead of 15 percent it was at before. Further, you only have to repay those loans for 20 years, rather than 25–and at the end of that time you still haven’t paid off you loan, your debt is cleared. In addition, if you are a federal employee or teacher at a designated school or some other professions, you only have to pay your loan for 10 years. This loan forgiveness change will go into affect when students begin repayment in 2014.
Student Loan Reform Doesn’t Mean Higher Interest Rates
Interest rates on federal student loans are set by Congress, and the reconciliation bill will not change the interest rates that students are charged. The interest rates are capped depending on what type of loan it is, just as student loans backed by the federal government have always been. However, private loans never had such caps and will continue to be a function of your credit and market forces.
More Choices for Student Funding
One of the consequences of this student reform is additional monies going into the Pell Grant programs. This means more access to money that doesn’t have to be paid back for students who are in financial need. In addition, the bill tripled the available tax credit for college education deductions. In an effort to making funding college an easier process, the FAFSA has been simplified, as well. For more information about what to do to be eligible for student aid, see the U.S. Department of Education guidelines.