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Change is On the Way: How Lending to Students Will Shift

Nov 25, 2009 Jennifer Williamson, Distance Columnist | 0 Comments

President Barack Obama recently signed into law sweeping changes to existing education funding legislation under the American Recovery and Reinvestment Act of 2009, with increased funding designed to make a college education more affordable and accessible to all. Here’s an overview of the benefits for students in the legislation—and, if enacted, how the changes in student lending could benefit you.

Pell grant funding will increase a bit faster than inflation

Previously, the federal Pell grant program is subject to the discretionary budget process—so each year it can be reduced or increased based on how the government wants to allocate spending. Under the new program, a certain amount of funding is mandatory. Starting in 2010, the maximum amount students can be awarded through the Pell grant program will be determined based on the consumer price index plus 1%--so the amount given will now do a better job of keeping pace with rising college costs, hopefully. For the
2010-11 academic year, students can earn up to $5,350 through the Pell grant program.

Students will get college loans through the government, not banks


One of the most dramatic changes this legislation will be to eliminate the current system of education loan funding through banks. Previously, most students got their federal student loans through banks. The government would guarantee payback of a large percentage of the loan to the banks if the student defaulted. The problem with this system is that since the loans are given through banks, the student loan system is subject to market turmoil—as mortgages and other types of personal loans are.

Under the new system, student lending would be much more stable

Eliminating bank subsidies is projected to save billions for the government—money that can be reinvested in government loan and grant programs. Under the new legislation, federal loans for students and parents would be administered directly via the same electronic system used to deliver Pell grant funding.

The Perkins Loan program would be expanded

Previously, the Perkins Loan program—the best federal loan program available, with a low fixed interest rate that doesn’t accumulate interest while you’re in college—had about $1 billion in funding. This proposal increases the funding for loans to about $6 billion every year—making Perkins loans more widely available and in greater amounts to students with demonstrated financial need.

In addition, participating colleges will increase from 1,800 to over 4,400 nationwide. Previously, the formula that dictated how much Perkins funding a school would receive was based on a formula that favored more expensive schools. Under the new laws, Perkins funding will be allocated to schools that provide a larger percentage of need-based aid and that work to keep costs down for all students.

Additional tax credits for middle-class families

Previously, middle-class families could write off up to $1,800 per year for college tuition on their taxes. Under the new legislation, tax write-off amounts are increased to $2,500.

Research into what works for low-income college students

In addition, the new budget includes about $500 million in grant funding for a partnership between federal, state and local governments to conduct research into how to increase college completion—especially among low-income college students. The new research will hopefully support future programs that ensure student retention and graduation.

Job training funding is increased

Also included in the provisions include $3.95 billion in additional funding for job training and $500 million for vocational training for the disabled.

A college education in America is still expensive. But with these changes, hopefully college tuition will be just a little more affordable—and earning a degree will look a little more possible to millions of low income families around the country.  With additional tax credits, expanded government funding for Pell grants and Perkins loans, and increased funds for job training, student retention research, and more, hopefully a college education will become less expensive and more of a possibility to those who need the help the most.

Update on student loans -



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