Back in March, the President signed the historic Health Care and Education Reconciliation Act and we blogged about how it would help college students and their families. Some major parts of that legislation took effect on Thursday, July 1st.
From now on, all new federal student loans will be made through the Direct Loan program. The Department of Education provides the capital for new loans and private companies selected through a competitive process service and collect them. This means the federal government won’t be subsidizing banks anymore.
The transition to direct lending will save the government billions of dollars a year. These savings make another one of Thursday’s changes possible. The maximum Pell Grant award for 2010-2011 is increasing to $5,550. This is $800 more than when President Obama took office.
July 1st marked the first anniversary of the Income-Based Repayment (IBR) Plan, and two new regulations that will expand eligibility took effect. IBR links monthly federal loan payments to income and family size, so that borrowers aren’t crushed by unmanageable debt burdens. As a result of Thursday’s changes, borrowers who could not benefit from IBR based upon the size of their initial debt, but whose debt has grown due to accrued interest, may now qualify. The new rules also eliminate the "marriage penalty" by considering total federal student loan debt of the couple when calculating eligibility for IBR.
In a few weeks, college students will head back to campus. Thanks to these changes, they won’t have to spend as much time worrying about how to pay.
Brian Levine is Deputy Domestic Policy Advisor to the Vice President