NEWS

Obama law to affect student loans in 2014

President increases Pell Grant funds, modifies loan policy with 2010 Health Care and Education Reconciliation Act

President Obama signed the Health Care and Education Reconciliation Act into law yesterday at the Alexandria campus of Northern Virginia Community College.

The legislation will restructure the repayment schedules for student loans. Beginning in 2014, graduates will pay back their students loans based on 10 percent, rather than 15 percent, of their incomes. Then, after 20 years of repayment instead of 25, the remaining balance will be canceled, according to the act.

The law is intended to save the federal government $68 billion by "ending wasteful subsidies given to banks and middlemen who handle student loans" and will provide more funding for Pell Grants, minority institutions, community colleges and subsidies for students loans, said Tim Kaine, chairman of the Democratic National Committee and former governor of Virginia.

The savings largely will come from no longer using financial institutions such as Sallie Mae to receive money for originating loans, though they will continue to serve them, Kaine said.

The savings from the policy will help to support alternatives to loans. The policy, for example, allocates an additional $40 billion to funding for the need-based Pell Grants, Obama said. In addition, $2 billion will go toward funding community colleges, he said.

Furthermore, the act extends "funding for programs ... for Historically Black Colleges and Universities and minority-serving institutions through 2010," including $100 million to Latino-serving institutions, according to the legislation text.

The bill, therefore, is the "single largest investment in higher education," Kaine said.

Katie Naranjo, president of College Democrats of America, applauded Obama's efforts to pass the legislation, but opponents are less enthused at the prospect of the federal government becoming the sole originator of student loans.

"There are simply fewer loans to go around," said Garren Shipley, communications director for the Republican Party of Virginia. "Because all federally backed student loans will be controlled by the federal government, now, students are at the hands of the Treasury Department."

Shipley said he distrusts a loan program fully backed by the government, adding that the bill "cheats students" because $10 billion of the savings from student aid reform will be used to pay for the new health care program.

Moreover, he said consolidating the originators of loans simply takes away the number of jobs needed in the business, which could have poor results on the economy.

"We are very concerned," Shipley said. "It's going to cost jobs in Virginia at companies like Sallie Mae, who have already said they're going to be laying people off. That is certainly not what Virginia needs right now."

Nevertheless, Kaine said the legislation will have positive effects overall for higher education.

The $68 billion saved because of the policy will "enable us to expand the Pell Grant Program and allow us to put $10 billion toward deficit reduction ... and will help students realize their dreams of getting higher education by switching to a system of direct lending," Kaine said.


Published March 31, 2010 in News







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Craig
(01/01/70 12:00am)
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One minor clarification from the above -- the Income-Based Repayment schedule (a reduction from 15% of disposable income cleared after 25 years to 10% of disposable income cleared after 20 years) begins for "new" borrowers on July 1, 2014. Deciphering statutory terms, that means if you have took a loan for the 2013-2014 school year, or any academic year prior to that, you're not eligible for the reductions, you're still held to the 15% and 25 years (in and of itself still is not a bad deal until you earn a moderate salary, depending on your loan balance, then you revert to a normal 10-year repayment schedule). So a Freshman in 2014-2015 (or anyone else who hadn't taken a student loan for earlier years) will be eligible to begin repayment in this reduced schedule, if they qualify for it, in the fall of 2018 when they would normally enter repayment. Current Freshmen in high school are the most likely beneficiaries of this program, not you as a current student.

And, as a side note "subsidies" make up about 15% of the government's "savings" - the other $55M+ comes from students making their student loan payments. The federal government can borrow money at about 1.5% and charge students 6.8% interest. They pocket the 5.3% difference to pay for Pell grants and the other programs.


Craig
(01/01/70 12:00am)
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Sorry, that should read "have taken" in the second sentence.


Rockime
(01/01/70 12:00am)
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I can't believe a Republican, Garren Shipley, is claiming that the government should maintain inefficiency to maintain jobs! Talk about socialism. That ain't the Republican party I am sometimes a part of. This is a perfect example of why I now hesitate to be a Republican. Today's Republicans have a bad habit of simply opposing anything that Obama or the Democrats do, whether it makes sense or not.

I won't be heading back to the Republican side until they lose this kneejerk contrarianism.

Rockime



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