Federal college loan rates have been cut in half, Pell Grants will see a slight annual increase and students will not have to devote more than 15 percent of their income to loan repayments, now that the student-loan reform bill has been signed into law.
“This bill makes strides for college students … in making college affordable,” said Rebecca Thompson, legislative director for the Washington-based United States Student Association, an education and lobbying organization.
Aside from cutting the interest rate for federal loans from 6.8 percent to 3.4 percent over the next four years, the College Cost Reduction and Access Act increases Pell Grants gradually from $4,310 a year to up to $5,400 by 2012. Students who go into public service careers can have their loan debt forgiven after 10 years of payments, and everyone else, after 25 years of payments.
But the bill, whichhas a $20 billion price tag, comes at a cost, and will be passed onto lenders who provide federal loans. The bill calls for a $20 billion cut in lender subsidies, which will go into effect on Oct. 1. Lenders warn they will be forced to reconsider the type of students they are granting loans to, and that in the end, the bill will hurt low-income students.
“Our biggest concern is the negative impact on borrowers,” Jeffrey Andrade, executive vice president of medium-sized lender U.S. Education Finance Group told The Examiner at the time the House and Senate were reconciling versions of the bill.
Andrade says he fears the bill will hurt smaller lenders, as the cuts are across the board, and will eliminate some of them and decrease competition.
He said his firm might cut loans of less than $15,000, which are typically taken out for students attending trade schools or community colleges, because they are not profitable.
Thompson said she thinks the idea that loans to low-income students or students in professions with low salaries will be reduced is a “scare tactic” and won’t happen.
Lenders won’t “be able to make a profit off of the backs of students,” but will “continue to make loans,” Thompson told The Examiner.
“I think if you look at it, if lenders have to suffer a little bit, that’s how it has to be,” said Sarah Bauder, director of the student financial aid office at The University of Maryland.
Bauder, who previously thought that students would be hit by the subsidy cuts, said lenders she has come in contact with are “looking at other ways to cut overhead.”
