Updated April 02, 2010The health care reform bill provided for changes in federal student assistance loan and grant programs that will be important to current and prospective students, and their families.
Banks Leaving the Student Loan Loop
One provision of the Health Care and Education Reconciliation Act of 2010 replaces the Federal Family Education Loan Program (FFELP), through which federally-backed loans were made by banks and other private lenders to students or their families. Under the changes, banks will no longer be involved as a "middleman" in the federal student loan system. Instead, all colleges will have until July 1, 2010 to switch to the federal direct lending program. Many colleges have already made this conversion. New student loans made banks and other private lenders will no longer be backed by the government. Banks currently servicing federally-backed student loans will be allowed to continue servicing those loans.
To the borrowers' advantage, interest rates for federal PLUS loans for graduate and professional degree students, and their parents, are lower for loans acquired through the direct lending program than for loans acquired through the FFELP. In addition, the approval rate for PLUS loans to parents through the direct lending program is higher than through FFELP.
Lower Loan Payment Caps for Low-income Students
After July 1, 2014, low-income students who qualify for federal student loans will have their maximum monthly loan payments limited or "capped" at no more than 10 percent of their monthly post-graduation discretionary income. The current monthly loan repayment limit is 15 percent of income. "Discretionary income" is income left after payments for housing, food, clothing and other essential needs.
Faster Loan Forgiveness
Students who dependably make their loan payments on time can have the outstanding balances of their loans forgiven - considered paid-in-full - after only 20 years, instead of the current 25 years. Law enforcement officers, teachers, nurses and people in the U.S. military, may have the balances of their student loans forgiven after 10 years of dependable payment history.
Pell Grants Increased
The current federal Pell Grant award of $5,550 per year will be increased to $5,975 between 2013 and 2017. Unlike loans, federal Pell Grants do not have to be paid back. During the 2008-2009 school year, more than 6 million students received Pell Grants. The U.S. Department of Education estimates that by the 2020-2021 school year, an additional 820,000 Pell Grants will be awarded because of the changes made by the student loan and grant provisions of the health care reform bill.
Federal Student Aid Primer
Basic information on the federal student loan and grant programs, and how to apply for them.