Student loans to undergo revisions
April 2, 2010
When President Barack Obama signed healthcare reform into law last week, the legislation included significant changes to the way student financial aid is delivered nationwide.
Lumped into the healthcare legislation during the reconciliation process, the new financial aid process eliminates subsidies to banks for providing low-interest student loans, like the Stafford Loan Program, instead offering students loans directly from the federal government.
“My understanding of the legislation is, the old Stafford Program … [has] been dismantled,” economics professor Robert Archibald said. “It’s been determined that direct loans from the government would be a cheaper way to do loans.”
According to Inside Higher Education, the switch is expected to save the federal government approximately $43 billion over 10 years, $36 billion of which will go toward an expansion of the Pell Grant program, which provides students need-based aid. Aid is determined through Free Application for Federal Student Aid applications, which quantify how much money students or their families should be able to contribute to tuition.
The legislation increases the individual cap by $200, to $5,550 and will continue to rise at the rate of inflation for five years to $5,975 by 2017.
The College of William and Mary’s Office of Financial Aid Director Ed Irish said that while increasing the Pell Grant cap is notable, it does reflect rising costs of tuition at the College.
“If the cost of going to school is going to go up 6 percent, and Pell only goes up 2 percent, then it’s going to lose ground,” he said.
According to Irish, the use of Pell Grants increased during the Bush Administration. However, Pell Grants only comprise approximately 10 to 15 percent of the grant money distributed by the College. Most grants are provided by the College itself or by the commonwealth of Virginia.
According to Archibald, the expansion of the Pell Grant system is part of an effort to make the grants available to more students.
“They’re trying to make Pell Grants more attractive, and increase the maximum [cap],” Archibald said. “It’s amazing how many students leave free money on the table.”
Currently, the College’s Financial Aid Office is in the process of adjusting for the new loan system, specifically for the elimination of Stafford Loans.
“It’s not going to make much difference to students, but it is a big administrative change,” Irish said. “It’s a hectic time, getting things into place in a few months.”
The new loan system should be in place in time for the fall 2010 semester. According to Irish, student access to low-interest loans will not be affected by the change, although the elimination of the Stafford Program may make choosing between loans easier.
“Nobody should lose any eligibility,” he said.