BU Today

Campus Life

Student Loan Changes and You

New law expands direct lending by feds

7
FAFSA.jpg

It turns out that the monumental health-care bill passed by Congress two weeks ago is about more than health care. Tethered to the massive overhaul are big changes in the student loan program. BU Today has assembled a primer on changes wrought by the bill, with answers drawn from media reports and interviews with experts at and outside of BU.

What does the new law do?
It scraps the government’s middleman subsidies for banks lending to students. This amounts to $68 billion over the next 11 years, paid to such banks as the student-lending leviathan Sallie Mae. Private banks may still service loans and will offer private, credit-based student loans that the government won’t guarantee.

Most of the savings from the elimination of these subsidies will be funneled into bigger Pell grants for low-income students. About 15 percent of BU undergraduates have Pells, according to Christine McGuire, executive director of BU’s Financial Assistance Office.

Although it won’t benefit current borrowers, the savings will also be used to ease the payback burden on graduates. Those who take out new loans after July 1, 2014, will be required to fork over 10 percent of their monthly income to repayment, down from the current 15 percent, and if they don’t fall behind in their payments, their loans will be forgiven after 20 years. Currently, forgiveness takes 25 years.

What does all that mean for BU students?
McGuire says most student borrowers here, undergraduate and graduate, get their loans directly from the government; only 18 percent of families have private loans, which they obtain on their own.

“My office and the private lenders tell students to borrow the maximum in federal loans before seeking private loans,” says McGuire. “Our students still get Sallie Mae and other private loans, but they seek them on their own as extra financing.” Financial Assistance administers three types of direct loans: Stafford (for students with and without financial need), PLUS (for parents and graduate and professional degree students), and Perkins (only for students demonstrating financial need).

What about the increase in Pell grants? How helpful will that be?
The increase, tied to inflation for the next few years, will raise the maximum grant a mere $425, from $5,550 next year to $5,975 by 2017.

“This investment is a step in the right direction,” says Pedro de la Torre III, an education expert with the Center for American Progress, a Washington think tank. “But we are still not near the finish line. It is vital that Congress continue to find ways to expand the program over the next decade.”

Can someone with a private bank loan swap it for a direct loan?
“No,” says McGuire. “ ‘Direct loan’ refers to government-guaranteed loans, and these require a financial aid application. Direct government loans should always be sought before pursuing private credit-based borrowing. Private student loans are more expensive.”

Previously, student loan borrowers could not file for bankruptcy protection. Does the new law change that?
No. “This is an issue that Congress should solve,” says de la Torre. “There is no reason why debt taken out for an education should be a bigger burden than debt taken out to buy a Lamborghini.”

Some graduates paying off loans have alleged that there are private lenders who resort to draconian collection efforts and impose onerous late charges and interest hikes for a missed payment. De la Torre says the new law does not address those matters, but does offer some benefits.

For example, he says, direct government loans generally come with smaller late fees than private loans. And “while many of the same lenders, including Sallie Mae, will be involved in collecting and servicing loans, the secretary of education can punish bad behavior by lowering their volume or even kicking them out of the program,” he says. “I am confident that this department will begin improving oversight over these contractors, but it is important for consumer rights organizations to urge the department to be aggressive in protecting the rights of borrowers.”

Post a comment about how student loans are affecting you. Will they influence what kind of job you look for after graduation? Does it mean you plan to work for a few years to save up money for graduate school?

Amy Laskowski can be reached at amlaskow@bu.edu; follow her on Twitter at @amlaskow. Rich Barlow can be reached at barlowr@bu.edu.

7 Comments

7 Comments on Student Loan Changes and You

  • Maureen Barrera on 04.08.2010 at 10:44 am

    Student loans

    This new law is not going to help my daughter CAS ’11 who will end up with $60,000 in loans,half of which had to come from Sallie Mae because BU could not offer more grants of government loans to her. It is hard to believe that only 18% of BU students need private loans. We have put 3 daughters through college and all have taken on large private loans. Our maximum parental contribution has been equal to their loans and they have all worked through college. These loan changes are too late and too little for us.

  • Anonymous on 04.08.2010 at 7:15 pm

    student loans

    I work in the student loan industry. Right now everyone is bashing the private loan industry. Just wait until all of the students of today don’t repay their loans. They only have so much time they can defer these loans. Then all of the people who are too good to work in any other field than the one they chose to go to school for can default. Just remember all the Sallie Mae bashing you are doing now. Wait until it’s Uncle Sam garnishing your precious pay checks and disabilility and unemployment benefits and even social security when you choose not to work.

    I was raised in an environment where you got a job as soon as you were able to work. I feel sorry for today’s youth who have no ambition and who expect eveything handed to them on a silver platter. Just remember that now Uncle Sam will be the bad guy in everything so enjoy your socialism or whatever out government turns our to be after this administration is through taking everything over!

  • Anonymous on 04.09.2010 at 12:06 am

    I’m glad the government is taking a small step in the right direction, however, this doesn’t help me at all. I am paying my own way through school without any help whatsoever from my parents. The school should be recognizing students such with the same situation as me and giving more money through grants. I will have taken out about $100,000 in private loans by the time I graduate. Currently, I don’t even have a cosigner for the next fall because my parents’ credit is too bad to cosign for loans and my grandmother can’t get approved for another two years. Therefore, the $50,000 that I have already taken out might have been for nothing. BU was my dream. But it is starting to seem as if it wasn’t a dream worthwile.

  • anon-e-mouse on 04.10.2010 at 5:22 am

    I’m glad the government is taking a small step in the right direction, however, this doesn’t help me at all. I am paying my own way through school without any help whatsoever from my parents. The school should be recognizing students such with the same situation as me and giving more money through grants. I will have taken out about $100,000 in private loans by the time I graduate. Currently, I don’t even have a cosigner for the next fall because my parents’ credit is too bad to cosign for loans and my grandmother can’t get approved for another two years. Therefore, the $50,000 that I have already taken out might have been for nothing. BU was my dream. But it is starting to seem as if it wasn’t a dream worthwile.

  • Anonymous on 04.11.2010 at 10:44 am

    Happy

    I am pleased that the government is making some changes. I have loans with a private loan company and the goverment. The goverment has been much easier in granting econmic hardship deferments after my hours were reduced at work. I’m glad they are getting rid of the private co. subsidies, they are worse than credit card companies at times!!

  • Anonymous on 04.12.2010 at 3:14 pm

    Down with the student loan industry!

    “Then all of the people who are too good to work in any other field than the one they chose to go to school for can default.” This commenter’s logic is ridiculous, probably from spending too much time working for the student loan “industry.” The fact that s/he refers to it as an industry is asinine. I graduated with a degree in journalism/communication and have been more than happy to take any job I could get since graduating. I do agree that in tough times people need to suck it up and take what they can get, but Sallie Mae’s ruthless repayment policies make it so that I’m squandering my small and hard-earned money on a loan that, three years later, is still bigger than the principal. My federal loans have been extremely easy to deal with–when I’ve been in between jobs, they’ve been very understanding. Sallie Mae, on the other hand, hasn’t given me an inch. Call me a socialist all you want, but I’d personally much rather have the government handling my debt than some greedy corporation.

  • Anonymous on 04.27.2010 at 4:31 pm

    I’m relieved to hear that the government is doing something. However, college tuition in the United States (both private and public) has become outrageous. With the economy the way it is, it will be many years before these kids will be able to pay off their loans. This article has some good tips http://www.moneynowusa.com/paying-back-your-student-loans.html

Post Your Comment

(never shown)