As you can imagine, people have been asking tons of questions about the new health care reform bill recently signed into law. One particular question has to do with the way this new bill will affect student loans. In this article, we wanted to provide information regarding changes to student loans directly linked to the new health care reform. How will student loans change with health care reform ?
For starters, legislation for health care reform and student loans was voted for approval and signed into law on March 21, 2010. While this bill was supported solely by democrats with no republicans voting in favor, many changes will benefit some more than others will. For the student loan bill, this will end the student loan program, as we have known it for years under the federal government in which loans were guaranteed.
The initial way student loans were established was to provide backing by banks and financial institutions whereby if a student were to default on the loan, it would be covered by the United States Department of Education. Now, any student loans starting July 1, 2010 will go through a Direct Loan program. This means funding for these loans will now come directly from the federal government instead of through a financial organization.
According to the Congressional Budget Office, this single change to student loans by itself will save approximately $68 billion spread out over the next following ten years. The reason is that cost to private lenders from the federal government would be less but in addition, the middleman in the equation would be eliminated. Of the estimated $68 billion saved, some $40 billion will go toward helping fill the gap for the Pell Grant program. With this, the maximum Pell Grant would increase, only by a small margin.
Some of the other savings would go toward reducing the national deficit, about $1.5 billion would be used for funding improvements in the repayment program established as an income-based program, and any remaining money from the $68 billion would help with a variety of other priorities although what these are is yet to be known. Okay, so how will the changes to student loans with the new healthcare reform look to students?
The Direct Loan Program that will now be used to fund student loans will still offer students with the same types of loans as before, which includes consolidation loans, PLUS loans, and Stafford loans. However, some differences would be noted. For instance, using the Direct Loan Program, students applying for a PLUS loan would have a higher approval rate. In addition, the interest rate charged for the PLUS loan would drop from 8.5% to 7.9%, which is a savings to students.
Another change for student loans because of the health care reform is that instead of students needing to search for a lender, they would process the loan application and approval through financial aid for the college or university attending. Then specific to Pell Grants, the maximum would also increase. Experts state that for the remainder of 2010 and all of 2011, the maximum award for a Pell Grant would now be $5,550 but for 2019 and 2020, the amount would climb to $5,900. While this is an improvement, it is still $1,000 lower than what was in the original proposal.
In summary, securing a student loan will now be easier, interest rates for loans will be lower, and the amount of funding for Pell Grants will increase. Other than that, the only other significant change would be the way in which students would apply and receive student loans. While some students are still skeptical that this will be enough to further education, it appears to be a step in the right direction. The bad news, you still have to pay off your student loans as quickly as you can .