A better way to get government loans for college began on July 1. All federally guaranteed student loans are now issued directly through the Department of Education. Bank lobbyists were kicking and screaming when the change was added to the health care reform bill earlier this year. The government has removed banks as the middleman for federally guaranteed student loans, and ended the billions of taxpayer dollars in subsidies paid to banks for pushing paper on those loans.
Resource for this article: Federal student loan move ends taxpayer gravy train for big banks by Personal Money Store
Billions in tax dollars saved with federal student loan overhaul
The end of student loan subsidies for big banks will create $ 68 billion in savings over the next 10 years, according to government estimates. Colleges and universities are required to offer all loans through the Federal Direct Loan Program (FDLP) from July 1 forward. The FDLP, the government says, can be a more reliable lender for students and a better value for taxpayers.
Federal student loans – what changes?
Students getting government loans for college now do so exclusively through the Department of Education. USA Today reports that the FDLP eliminates the Federal Family Education Loan Program (FFELP), which had allowed banks and other commercial lenders to offer federally guaranteed loans. Affected loans consist of subsidized and unsubsidized Stafford Loans for undergraduate and graduate students, as well as PLUS (Parent Loan for Undergraduate Students) for parents and PLUS loans for graduate and professional degree students.
Students get scholarships, banks lose easy money
Most of the savings reaped by eliminating commercial banks from government loans for college can be applied toward the Federal Pell Grant program. Pell Grants are scholarships given to students from lower-income families that don’t have to be paid back. Native Times reports the maximum Pell Grant increases by $ 200 this fall to $ 5,500, and stay there until 2014.
Students must do their part now
This year students with a federally guaranteed student loan must file electronic forms through the federal government's secure site for the new program at studentloans.gov. Kenosha news reports that colleges and universities are under pressure to meet their responsibility to process the volume of student applicants. Financial aid directors are advising students and/or their parents to contact their college's student financial aid office with questions sooner, rather than later.
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