Savings from student loan reform could mean more federal grants
USF student Kaija Robinson is optimistic.
Even though last fall, Florida legislators implemented changes to Bright Futures – triggered by statewide budget cuts that decreased the award amount for recipients.
Robinson was one of them.
But a new student loan program written in the Health Care and Education Reconciliation Act, signed by President Barack Obama on Tuesday, could help ease the financial burden of college for some.
“It’s more efficient and it makes college easier if you do need to take loans,” said Robinson, a junior majoring in pre-athletic training, “which most of us do now that Bright Futures has been cut yet again.”
Obama said in his weekly address Saturday that this was a plan that had been in the works for two decades.
About two in three graduates take out loans to pay for college, Obama said, and the average student ends up with more than $23,000 in debt.
The new law will “cap a graduate’s annual student loan repayments at 10 percent of his or her income,” he said. After 20 years of payments at the reduced price, any remaining debt will be forgiven.
USF Director of Financial Aid Billie Jo Hamilton said that because loans will no longer be provided through private banks, students will no longer have to pay premiums – extra fees paid for banks’ services.
Additional savings will mean additional funding, she said.
“The savings from going to the direct loans will result in an increase in Pell Grant funding for students,” she said. “So they kept it within the Financial Aid programs and didn’t give it to somebody else.”
Obama said funding for federal Pell Grants – need-based grants provided to low-income undergraduates – would double under the new law.
Before signing the bill, Obama said that 800,000 additional Pell Grants will be awarded over the next 10 years and, to counter inflation, their worth will boost to nearly $6,000 each.
Hamilton said that, despite the increase in Pell Grant funding, other federal and state scholarship programs – like the Florida-based Bright Futures – will not be affected.
The bill, which Obama said aims to help five million Americans receive a degree over the next decade, will also increase support for Minority Serving Institutions, historically black colleges, universities and community colleges.
“This reform of the federal student loan programs will save taxpayers $68 billion over the next decade,” Obama said. “And with this legislation, we’re putting that money to use, achieving a goal I set for America. By the end of this decade, we will once again have the highest proportion of college graduates in the world.”
Even though parts of the law will not go into effect until 2014, Hamilton said students at USF would begin to see changes to the financial aid process this summer.
In anticipation, USF began accepting federal loans in lieu of state loans in fall 2009, Hamilton said.
“That particular decision was intentional,” she said. “That way we can work through all the bugs with a smaller group of students and be ready once the fall process begins.”
But Hamilton said some minor bugs might still exist within the new law.
Students could encounter issues consolidating pre-existing monies from private companies with the federal direct loan program, she said, leaving them to pay loans to multiple lenders.
USF student Blake Kimble said the bill will have a tangible impact on students – one he doesn’t agree with.
“It’s a load of crap,” said Kimble, a junior majoring in political science. “The government is already spending a tremendous amount of money on the health care bill and this does not promote a sense of responsibility within our government.”
However, Robert Spatig, director of admissions, said students shouldn’t feel any change.
“It should have no impact whatsoever since students won’t really notice a difference,” Spatig said in an e-mail to The Oracle. “All it means is that the loans will come from the federal government rather than through private banks.”
If students feel any impact, it may be increased paperwork.
“It’s not going to adversely affect them in any way,” Hamilton said. “The only pain is having to fill out a new promissory note, but besides that, there is no reason to be concerned.”
A promissory note is a promise to pay back a sum to a lender at a specified time.
Despite the changes to the system, Hamilton urged students not to worry.