Today we’re wrapping up the in-depth look at the health care bill and how it might impact your finances. Today we will cover the new student loan reform included in the health care bill.

Student Loan Reform Bill

The federal government has officially ended the bank-based system of distributing federally subsidized student loans through the passing of the Student Aid and Fiscal Responsibility Act (SAFRA), which was included in the health care bill signed into law on March 30, 2010.

This has been in the works for quite some time; over the past five months or so when I signed into my Sallie Mae account, the loan manager tab became separated by “loans owned by the government” versus ones that are not owned by the government. This is because with the drying up of the credit markets in 2008, the government stepped in and purchased the government-backed student loans from lenders such as Sallie Mae and Bank of America. The Department of Education has already directly purchased $52.3 billion in loans from private companies through the Loans Purchase Commitment Program, and now they own roughly 80% of all student loans.  

So how will this new law affect students?

Where to Get Your Student Loans

Beginning on July 1, 2010, students will go to designated private lenders, who are competing for the contracts from the US Department of Education. Included in the Obama student loan reform, private lenders must lend loans from the Direct Loan Program to students at the same rates, terms and benefits.

Expanded Financial Aid

More than $40 billion in Pell Grants will be available now due to the health care bill student loan provision, which will roughly double the total amount of funding available for Pell Grants. The Federal Pell Grant will be awarded according to the Consumer Price Index from 2013-2017 at an estimate of $5,550-$5,975. Currently the maximum Pell Grant awarded for 2009-2010 academic year is $5,350, with an added option for receiving an additional disbursement of $2,675 in the summer.

Help to Community Colleges

The government will now be saving an estimated $67 billion by directly loaning to students and cutting out the middle man in the student loan bill. The government plans to use $2 billion of this money to bolster community colleges, which are becoming a much more popular and viable education option for working adults and older students.

Student Loan Forgiveness Program

The student loan bill expands the existing income-based student loan repayment program (IBR). According to a White House press release, students who borrow money starting July 1, 2014 will be able to cap their student loan repayments at 10% of their discretionary income (currently it is 15%).

After 20 years of consistent, on-time payments, a student’s loans will be forgiven. Furthermore, public service workers (teachers, nurses, military service) will have debt forgiveness after 10 years.

More Student Loan Information

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Comments to Bill Includes New Student Loan Forgiveness Program

  1. 10% over 20 years? That won’t help very many people. It MAYBE would help people who get very expensive degrees and then earn relatively little afterward. But usually the expensive degrees come with nice paychecks afterward.

    Daniel

    • Hi Daniel! I think this is to help two different kinds of people.

      The first is the student who works in public service (making very little), and can have that debt forgiveness in 10 years. Let’s look at an example. If you graduate with a degree that cost $40,000 after all four years, and you make only $28,000 (net) in government service, and we assume that your “discretionary income” is somewhere around $24,000 (just throwing numbers out), then your student loan repayment would be capped at 10% of $24,000 each year for 10 years, at which point your debts will be forgiven. This means you will have only paid $24,000 after 10 years instead of $40,000. Of course, you do need to take into consideration salary increases, but it looks like you will get a break for being a public servant.

      The second type of student is the nightmare scenario that you talked about in your comment, where a student with an art, social worker, or historically low-paying (but not any less important) degree takes out $120,000 in loans, and can never hope to pay them all back. Once again, their income would be low to start with (let’s use the above $28,000 to make this simpler). Over 20 years, that person would pay around $48,000, and then would have the rest of their debt forgiven.

      You know someone who loves to talk about students with extremely expensive degrees and low-paying futures? Free Money Finance, so you might want to check out his blog: http://www.freemoneyfinance.com/

      Thanks for your thoughts!

      Amanda L Grossman

      • “but not any less important” art degree….
        are you serious?

        Robert Anderson


  2. I am a teacher and curious, does this program only apply to those taking out new loans as I already have my student loans and have been teaching for more than 10 years? Where may I get additional information? I have approximately another 18 years on my loans. I figure I will retire a few years after my loans are repaid.

    Todd

    • Hello Todd!

      Thanks for your question.

      From what I have read, it looks like this program is only for those taking out new loans starting in 2014. However, check out this brochure (and website) for information specific to teacher loan forgiveness. If you have further questions, I would definitely contact someone from this website because it is built specifically for people like you!

      I hope this helps.

      Amanda L Grossman

  3. This is all very good for future students but what about those who have graduated, can’t get jobs, and have huge loans the vendors want repayment on? Not all loans qualify for Income Based Reduction, such as most private loans and state loans. Is there any recourse for those individuals?

    L. Pena

    • Hi L. Pena!

      Quite honestly, I do not know what is out there to help out students with their current loans. I will take a look at it this week and hopefully get back to you.

      Amanda L Grossman

  4. Intersting article, but I agree with the first comment. This will do very little help for students with higher incomes.

    Denise

  5. Any sites for Military people or dependents for loan forgiveness?

    Vicky

    • Hello Vicky!

      Thank you for your question. I am not sure of the answer though. Perhaps you can get in touch with someone within the military family program? My husband was in the Navy, and I know they had a few groups who helped out families–they might know the answer.

      Amanda L. Grossman

  6. Great article. This New Student Loan Forgiveness Program is just what we needed to balance the score.

    Ben


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