Federal Education Funding Sees its Biggest Reforms Since the GI Bill
April 03, 2010
By Robert Weitzman
Enterprise Staff Writer
College students in Massachusetts shouldn't expect any major changes in their financial aid packages in the near future.
President Barack Obama signed a bill last week requiring all colleges to enroll in the government's direct-loan program in July - but there won't be problems here because most local colleges already made the switch.
That translates into good news for students and their families who may have been confused with the different financial aid paperwork out there. Many high school seniors received their college acceptance letters last week.
"Probably 80 percent of the students in southeastern Massachusetts are already on the direct-loan program," said Stonehill College's director of financial aid, Eileen O'Leary [pictured above]. "So a lot of students won't notice this."
The new law - the Health Care and Education Reconciliation Act of 2010 - is the largest reform of federal education funding in 45 years. It cuts banks and other private sector lenders, such as Sallie Mae, out of the college loan equation.
Starting July 1, the federal Department of Education will make 100 percent of college loans through a direct-lending program. That is expected to save taxpayers an estimated $68 billion dollars over the next 11 years.
The savings will go towards revitalizing the Pell Grant program, diversifying loan payment options for college grads, and funding community and minority-serving colleges.
The Pell Grant program - a major block in many student aid packages - will get $40 billion of the savings. There will be more grants available - as many as 850,000 - and the maximum amount of individual awards will also be raised to $5,975 from $5,500 by 2017.
Some said the new program will simplify the process of paying for college.
"While we appreciated the third-party lenders we used to work with, not having to choose from a variety of lenders has been helpful," said Massasoit Community College director of financial aid, Mary Beth Courtright. "It was almost too much choice for the students. They used to come to us and ask who they should use and we couldn't tell them."
Banks and private lenders can still make college loans but those loans won't be backed by the government.
They will continue to service a few federal loans. But this will be only a small fraction of the the once multi-billion dollar lending business that ruled college loans for decades.
Under the new program, community colleges will also receive $2 billion over the next four years and minority-serving colleges will receive $2.55 billion over the next decade.
For many local colleges, the decision to switch to the direct loan program was easy.
"We had heard it was easier than working with multiple lenders and we could see that the change was coming," said Diane Place, Bridgewater State College's associate director of financial aid. Bridgewater State College became a direct lending institute more than 10 years ago.
"It's been an easy transition," Place said. "Luckily we didn't have any ties to any banks of lenders."
The new plan is not good news for all.
Sallie Mae, the largest student lender, reported that up to a third of the 8,500 employees in their student loan program will likely be laid off.
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