I was surprised to learn that none of the participants in our May 5, 2010, live Q&A with student aid guru Mark Kantrowitz knew about changes to student loans that President Obama signed into law in March. Granted, they were upstaged by the health care law in which they were buried. So, here are some of the key changes:
- Federal student loans will be handled directly by the government, not banks or private lenders, starting July 1, 2010. However, private lenders can still make student loans; most of them just won’t be backed by the government.
- There will be automatic yearly increase in Pell Grants from years 2013-2018, based on Consumer Price Index Summary for all Urban Consumers.
- Loan payments will not exceed 10 percent of discretionary income for new borrowers, starting July 2014. Current law caps payments at 15 percent of income.
- There will be more loan forgiveness opportunities, starting in 2014. 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.
- There will be more funding for community colleges and minority-serving institutions.
Mr. Kantrowitz has written two articles on the 2010 changes to education loan programs:
- How Will The Student Loan Bill Affect Students? | FastWeb
- Health Care and Education Reconciliation Act of 2010 | FinAid: A fairly technical article in Q&A format.
The new law doesn’t provide relief for those who already have student loans, which we’re often asked about at the Foundation Center. Mr. Kantrowitz suggested some options when asked about it during our chat:
Loan forgiveness provides help after incurring the loans. But there aren’t any grants other than forgiveness programs to pay down debt. Some employers might offer a signing bonus to pay off loans (e.g., to recruit nurses). The income-based repayment program also provides a safety net for borrowers who are having trouble repaying their federal student loans. Federal loans also offer temporary suspensions of repayment called deferments and forbearances, but interest can continue to accrue during these repayment suspensions, so it is not a good idea to overuse them.
Mr. Kantrowitz also mentioned “no-loan” colleges for low-income students. These are schools that ensure that qualifying low income students have no loans in their financial aid packages. Among these schools are some big names, like Princeton, Stanford, Harvard, and Yale. Students who meet the criteria could actually pay less out-of-pocket by attending one of these private institutions versus going to a public college/university.
In fact, I heard the same thing several years ago about the University System of Georgia’s study abroad programs, depending on the country and subject of choice. Key lesson I learned (or re-learned): Find out the actual cost, based on your own financial situation, before you decide you can’t afford Ivy League or international study.
Student financial aid isn’t the Foundation Center’s area of expertise, but we still get a lot of questions about where to find grants for school. Although foundations generally give to nonprofits, about 8,500 of them (just under 1 percent) also give to individuals, mostly for studies or artistic/research projects. Please see our FAQ for students for the resources we’ve developed and collected to help students find foundation grants and other forms of aid.