Update on New Federal Student Loan Law

If you are — or will be — paying for law school with student loans, keep reading for an update about the new federal student loan law.

On March 30, 2010, President Obama signed into law a final version of the new student loan law, The Health Care and Education Reconciliation Act. An earlier version of the law, the Student Aid and Fiscal Responsibility Act of 2009 (SAFRA) was passed by the U.S. House of Representatives in fall 2009. We highlighted the key components of SAFRA and it’s impact on students in our podcast, Financing Your JD: How To Pay for Law School.

We spoke recently with Law School Podcaster guest and financial aid expert, Mark Kantrowitz, publisher of FinAid.org and FastWeb.com and asked him how the final version of the student loan law compared with the earlier House bill.

Kantrowitz said, “a scaled-back version of SAFRA was included in the Health Care and Education Reconciliation Act of 2010. It switches to 100% direct lending effective July 1, 2010, but the increases in the Pell Grant are smaller, the Perkins reengineering was dropped, and the College Access and Completion Innovation Fund was cut from $3 billion to $750 million. The improvements to the income-based repayment plan were included, but those will only be effective for new borrowers on or after July 1, 2014. Those changes are not retroactive.”

The cornerstone of the new law remains the 100% direct lending provision.

The student loan bill will end the federally-guaranteed student loan program, where banks and financial institutions make federal education loans that are guaranteed against default by the US Department of Education. Instead, all new loans starting July 1, 2010 will be made through the Direct Loan program, where the funding comes directly from the federal government

So, in terms of the amount of federal loan money available to students, does the new law make it easier for current and prospective law students to finance law school? Or, is there really no change? College is always going to be a major expense, and for those who are financially independent it can cause a significant strain. They will need to find other sources of income while they study, such as investment (look at this questrade review for some tips), but an additional loan would certainly help to make things easier for them in the short term.

Kantrowitz says, “No real change except for the lower interest rate on the Grad PLUS loan in the Direct Loan program. That rate (7.9%) is lower than the rate in the FFEL program (8.5%). But note that it is not the rate that changed, but rather the mandate that all new loans be direct loans starting July 1, 2010.” According to Kantrowitz, most students will not notice much of a difference because of the new legislation. He notes the only real change is in “how” students will get their loans: “Students will obtain their loans from the college financial aid office instead of having to find a lender. But otherwise the loans are nearly identical in the two loan programs.”

Kantrowitz recently authored two articles about the new student loan legislation that you may find helpful. These articles include “How Will the Student Loan Bill Affect Students?” and “Questions and Answers on the Student Loan Bill.”

For more details on this topic and to hear from Mark Kantrowitz about how to pay for law school, listen to our full podcast, “Financing Your JD: How to Pay For Law School“.