Student Loan Law to Help Students, Colleges

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By Darlene Superville, Associated Press Writer

WASHINGTON (AP) — Bigger grants for college students who need them. Relaxed payment terms for students with loans. More money for community colleges and historically black institutions.

The law that President Barack Obama signed Tuesday could mean big changes for hard-pressed students and colleges as the government becomes the primary issuer of student loans. But just whom will that affect and how?

Q: What does the overhaul of student lending do?

A: Basically, it cuts banks out of the government-backed student loan business. Money for the loans has come either directly from the government or through private financial institutions, which have collected billions of dollars in federal subsidies to protect against default.

Under the changes, banks will no longer act as middlemen, and all colleges and universities must switch to the direct lending program by July 1. Many already have made the switch in anticipation of the new law.

Private lenders can still make student loans that are not backed by the government, and they will continue to have contracts to service some federal loans. But the new law represents a significant change in what has been a multibillion-dollar business for the banking industry.

Q: How much money will the government save?

A: Taxpayers will save $68 billion over the next 11 years, according to the Congressional Budget Office.

Q: What will Obama do with the money? How will this affect students and their parents?

A: A chunk of the savings will go toward Pell Grants for college students — to award more grants and to provide larger amounts. Community colleges and institutions with predominantly minority populations also will receive funding.

Q: Will the changes bring down college costs?

A: Sorry, no. Obama acknowledged as much before signing the bill when he urged colleges and universities to "do their part" to hold down costs.

Q: OK, what exactly is happening to Pell Grants?

A: More than $40 billion will go toward the grants, which are targeted toward students from low- and moderate-income families. Between 2013 and 2017, the maximum award will increase to $5,975 from $5,550. The administration also expects more than 820,000 additional awards to be made by the 2020-2021 academic year because of the changes.

Some of the money will address shortfalls in the Pell Grant program that developed because students were qualifying for more and larger grants. More than 6 million students received such grants in the 2008-09 academic year, an increase of about 50% from a decade earlier, according to the College Board.

Q: How else will students benefit?

A: Students who have low incomes or meet certain other eligibility requirements and who take out loans after July 1, 2014, will see their payments limited to 10% of their discretionary income after graduation. Current law caps payments at 15% of income.

For students who make their loan payments on time, the government will forgive the balance after 20 years, instead of 25. Public service workers — teachers, nurses, police officers and those in the military — will see any remaining debt forgiven after just 10 years of repayment.

Q: What's in the new law for community colleges?

A: Community colleges, which enroll more than 6 million students and are growing fast, will receive $2 billion over the next four years for a competitive grant program to provide training and education programs. The grant program was created in the economic stimulus bill enacted last year, but never funded.

Q: What about funding for institutions that serve mostly minority student bodies?

A: These colleges and universities will share $2.55 billion in additional funding over the next decade.

Q: Does anybody lose as a result of the changes?

A: Banks and other financial institutions. Sallie Mae, the biggest student lender, has about 8,500 employees in the student loan program and has said close to one-third of them may lose their jobs as a result of the overhaul. Sallie Mae still will have contracts to service federal loans.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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