Student loan reform side effect of health care legislation

By Emma Floyd
On April 27, 2010

Congress passed a groundbreaking bill in March to overhaul the current bank-based student loan system that will affect current and future UNH students, even if they don't know it yet.

Tucked into the health care reform bill, this education initiative changes the way federal financial aid has worked for over 40 years. Since 1965, the federal government has subsidized private banks, paying them to handle the dustribution of federal money to students in need. The current bill overturns this system by cutting the banks out as middlemen, instead lending directly to students.  

Sophomore Ali Slater has had bad experiences with Sallie Mae, one of the former banks in charge of student loans, and she is glad to see the old system go.

"They weren't very clear," Slater said. "I found out later I signed up for a plan where I start paying during college, like right now."

President Obama and supporters of the bill in Congress have said that changing to a direct lending program will save the government $68 billion over 10 years.

According to The New York Times, $40 billion of the savings will go to higher education. Most of this will be put toward Pell Grants, federal money for students from low-income families that doesn't need to be repaid. This increase in Pell grant funds will allow more students in need to receive money.

Suzy Allen, director of financial aid at UNH, said that she has already seen some of the changes at UNH.

"For the upcoming academic year, we are already seeing that the Pell Grant eligibility has been expanded, so this is a positive sign," Allen said.

The new Pell Grants will rise with inflation, increasing from the current $5,500 a school year to $5,900 in 2019. However, some people think that this is not enough to meet the rising tuition rates.

"College is so expensive," sophomore Alyssa Chaudoin said. "So it's not that much, but really every little bit helps."

In accordance with the switch to direct lending, UNH students will now need to take out their loans with the Financial Aid Office on campus. UNH previously participated in the Family Federal Education Loan Programs, the standard bank-based loan system, but will now give out loans themselves with the Federal Direct Loan Program.

Allen said that all students with Stafford and PLUS loans, components of the old system, will still have their loan, but it will just be done directly through the federal government.
"Same loan, different lender," Allen said.

Other changes to the student loan system include a more forgiving repayment plan, which will make it easier for students to pay off their debt. Students will only have to pay off debt as high as 10 percent of their income, down from the previous 15 percent. Student loans will also be forgiven after 20 years of payments, lowered from 25 years. These measures hope to make loans more appealing, or at least more manageable, to students who can't pay for college up-front.

With the national debt and recession forcing the government to cut many programs' funding, this bill largely saved what would have been a major cut to education, according to White House reports.

In his speech before signing the bill into law, President Obama said, "For a long time, our student loan system has worked for banks and financial institutions. Today, we're finally making our student loan system work for students and our families."

While it is hard to gauge the effects this bill will have on long-term student finances, college attendance rates and the economy at large, this legislation clearly has immediate benefits for students. Many students will receive the same loans they had before, but with lower interest rates. Those with PLUS loans will see a drop in the interest rate from 8.5 percent fixed down to 7.9 percent fixed.

The bill doesn't cover everything lawmakers originally wanted. Funding for community colleges was supposed to be a central feature of the bill, but most of the money was ultimately cut for them, along with much of the funding for early education programs.
Allen didn't comment on any flaws in the new method, but she did say that students with preexisting loans have to go into the Financial Aid Office to sign a new Master Promissory Note to change to the new system.  

Slater, like many of her peers, has done this, but she didn't realize it at the time.  

"My mom told me to sign some paper, and I did," she said. "I didn't realize it was this big, giant deal."

Though this bill may help students afford some loans, paying for college still looms large on the minds of students.  

"Well, the world is ending in 2012," student Nicole Brown said. "Then I'm loan-free. That's my strategy." 

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