Getting government loans for college changed radically on July 1. Instead of banks, now the Department of Education handles federally guaranteed student loans. Bank lobbyists were kicking and screaming when the change was added to the health care reform bill earlier this year. The government has removed banks as the middleman for federally guaranteed student loans, and ended the billions of taxpayer dollars in subsidies paid to banks for pushing paper on those loans.
Source for this article: Federal student loan move ends taxpayer gravy train for big banks by Personal Money Store
Federal student loan shift saves taxpayers billions
The government estimates that it will conserve $ 68 billion in yen years by ending student loan subsidies for big banks. Colleges and universities are required to offer all loans through the Federal Direct Loan Program (FDLP) from July 1 forward. The government claims the FDLP is a more reliable lender for students and more cost-effective for taxpayers.
Students getting a better deal
Students getting government loans for college now do so exclusively through the Department of Education. USA Today reports that the FDLP eliminates the Federal Family Education Loan Program (FFELP), which had allowed banks and other commercial lenders to offer federally guaranteed loans. Both subsidized and unsubsidized Stafford Loans for undergraduate and graduate students, also as PLUS (Parent Loan for Undergraduate Students) for parents and PLUS loans for graduate and professional degree students are affected by the change.
Banks lose easy money, students gain scholarships
Most of the savings reaped by eliminating commercial banks from government loans for college can be applied toward the Federal Pell Grant program. Students from lower-income families qualify for Pell Grants, which aren’t repaid. Native Times reports that the maximum Pell Grant increases by $ 200 this fall to $ 5,500, and stay there until 2014.
Students must do their part now
This year students with a federally guaranteed student loan must file electronic forms through the federal government’s secure site for the new program at studentloans.gov. Kenosha News reports that the change is putting pressure on colleges and universities in both responsibility and also the volume of students that have to be processed. Financial aid directors are advising students and/or their parents to contact their college’s student financial aid office with questions faster, instead of later.
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