With all the attention and media coverage drawn by the recent passage of health care legislation, it was easy to miss the significant overhaul to the way student loans are administered. The provisions that will change the way students can pay for higher education were tucked inside the Health Care and Education Reconciliation Act, which President Obama signed into law on March 30, 2010.
Although President Obama called it “one of the most significant investments in higher education since the G.I. Bill,” the real changes are to who administers student loans. Instead of private banks issuing loans guaranteed by the government, the government will now become the originator of the loan.
But just how much will reform affect the average student?
Mark Kantrowitz, Publisher of two important financial aid websites, FinAid.organd FastWeb.com, was a guest on a recent Law School Podcaster segment, Financing Your JD: How to Pay For Law School.” Law School Podcaster Host, Bonnie Petrie, talked with Kantrowitz specifically about the passage of the Student Aid and Fiscal Responsibility Act of 2009 (SAFRA)(and now signed into law as part of the health care bill) and asked him to outline what the new legislation provides. Kantrowitz explained, “[i]t cuts the costs of the student loan program by eliminating the federally-guaranteed student loan program, and replacing it with 100% direct lending from the federal government. The savings will be used to index the Pell Grant to inflation plus 1% and to expand the Perkins Loan Program and to establish a College Access and Completion Innovation Fund to try to increase the rates at which students graduate from college.”
Kantrowitz explained to Law School Podcaster listeners what this means for students. “Well, from a practical perspective, there aren’t that many significant differences between the direct loan program and the federally-guaranteed student loan program. Money is green no matter whether it’s coming from the federal government or private financial institutions, same money from either location. As far as the quality of customer service, the direct loan program has a bit of a smoother operation with the making or origination of the loans. The federally-guaranteed student loan program has better quality in the servicing of the loans after they enter repayment.”
For more details on this topic and to hear more from Mark Kantrowitz about the new federal direct loan program and how it affects the amount of loan money available, listen to the full show, “Financing Your JD: How to Pay For Law School“.