The Health Care and Education Affordability Reconciliation Act of 2010, was passed by Congress on Thursday, March 25. The bill will affect college students nationwide by changing the nature of how some student loans are funded and increasing federal grants.
Under the H.R. 4872 bill signed by President Obama on Tuesday, March 30, the government will no longer subsidize private banks for federal student loans, although they will continue to use the direct loan system. Some of the money saved by this will be used to increase the maximum award amount of the Pell Grant, which provides need-based financial aid to college students.
Michigan universities will benefit from a strengthened Pell Grant program and more affordable loan payment, Bart Stupak, a member of the U.S. House of Representatives, said in an interview. The legislation also offers increased funding for low-income students attending college to learn skills such as debt management.
“Michigan students can expect the maximum Pell grant award to increase from $5,550 to $5,975,” Stupak said. “The Pell grants will also be increased in future years to help keep pace with the rising cost of college due to inflation.”
Although the direct loans are derived from the government, the law requires that all of the loans are facilitated by private lenders, so services to students remain the same.
“The federal government has already proven that it can originate loans more efficiently, reliably and at a lower cost than private lenders. Where private lenders have excelled is in servicing loans to students (by) ensuring that borrowers pay back loans on time, providing financial literacy and helping prevent loan defaults,” Stupak said.
The student loan legislation is expected to improve Michigan’s economy by increasing the number of citizens with higher education, and less debt from student loans creates more financial benefits and higher salaries, stimulating the economy and state revenues, Stupak said.
Mike Rotundo, director of financial aid at NMU, is optimistic about the student loan legislation, because it will not negatively affect NMU.
“In fact, we’re going to come out stronger because of it,” Rotundo said.
NMU has had two federal loan delivery systems since the mid 1990s: one is through private banks, the Federal Family Education Loan Program, and the second is direct loans through the Department of Education.
The system that the government is switching to is one of the two that is already in place at NMU, Rotundo said. NMU will not have to change any of its business practices, since it doesn’t work with the banks.
Over a span of 10 years, the student-loan legislature is expected to save $61 billion in tax subsidies, with roughly $40 billion of it diverted to higher education, according to the Congressional Budget Office.
“(The legislation) really strengthens the Pell grant system. The poor economy has really put some pressure on the Pell grant, and more families are becoming high-need. We have a lot of high-need folks just because the U.P. has always been hit hard economically,” Rotundo said.
Erika Purdy, a junior sports science major, is a recipient of the Pell grant and has been since her freshman year.
“There has been much less stress on myself and my family to come up with the money to pay for school … (or) for me to have a job,” Purdy said.
The student-loan legislation also makes changes to income-based loan repayment starting in 2014, lowering the cap on repayment from 15 to 10 percent of graduates’ discretionary income. Those who keep up with payments will have their remaining debt forgiven after 20 years, down from the current 25 years. Those who enter a field in public services will have their debt repaid after 10 years.
“I think income-based loan repayment is good in theory, but the people who give loans need to make money too, and if students graduate and don’t get a job right away, then someone else isn’t making money either,” Purdy said.
For more information, go to www.gpo.gov/ or www.govtrack.us/congress/.