Since President Obama signed the health care act into law on March 30, people have been expressing their opinions about the changes that are soon to take place.
Although the Health Care and Education Reconciliation Act of 2010 has been headlining the media, it seems the health care debate overshadows the student-loan reform, which now makes the federal government the primary distributor of student loans, according to an article on ABC News’ Web site.
Starting July 1, all new federal student loans will be delivered and collected by private companies, which are under performance-based contracts with the Department of Education.
The Student Aid and Fiscal Responsibility Act is a student-lending program that will now replace the current program that subsidizes banks and other financial institutions for issuing loans, according to news reports. Instead, students will now be borrowing all loans directly from the federal government with interest rates that will be controlled and mandated by the government. Those rates change every year and are determined through voting.
“Basically, this cuts out the middle man,” said Vincent Tunstall, FDU’s director of financial aid.
Instead of having banks borrow money from the government to issue loans, the government will lend the funds directly.
For students, Tunstall added, there will be very little change. Students who have federal loans will simply have to re-sign their promissory note, which they can do electronically on FDU’s financial aid Web site starting May 15.
Simply put, the promissory note is a student’s contract and promise that he or she will repay the loan under the terms detailed within it, according to the Department of Education’s Web site.
“When students go to the Web site, there will be a box on the page that is hard to miss,” Tunstall said. “It will redirect them to the Department of Education Web site where they can sign the promissory note.”
The only change is that students, both graduate and undergraduate, who originally would only have to sign the note once when they first took out the loan, will have to re-sign it under the new law.
The interest rates for the federal loans will not change from what students previously had.
Tunstall also said that FDU hopes students sign the promissory note anytime after May 15, but before they return to school so their loans are ready for next semester.
The major revamping of federal student loan programs will eliminate fees paid to private banks to act as intermediaries, according a New York Times article.
Instead, the government will expand a direct lending program, and allow changes that are meant to revitalize community colleges and increase support for institutions that serve minorities and historically black colleges, according to ABC News.
The law will also put a cap on the loan payments for graduates, who have six months after their graduation date to begin repayment. The annual loan payments will not exceed 10 percent of their annual income.
The law also hopes to increase the number of Pell Grants, which provide need-based grants to low-income undergraduate and certain post baccalaureate students, according to the U.S. Department of Education Web site.
Grant amounts are determined by students’ Free Application for Federal Student Aid (FAFSA) forms.
“Ninety percent of our students get grants and loans. Our financial aid budget ends up being about $56 million a year,” Tunstall said. “The average grant/scholarship for a student is about $15,000.”
The law will not affect the private loans for students who have exhausted all federal loan options and still need to take out private loans with banks. Those loans, which are generally meant to cover the gap of what the federal loans issue and a student’s cost of attendance, will still be credit-based loans and deal directly with the bank that issues the loan.
Private banks, however, lobbied against the student loan changes, which eliminate a long-flowing source of revenue for them, according to a New York Times article.
Although the government will now lend the funds directly, eliminating the need for student loan lenders such as Sallie Mae, the nation’s largest student loan distributor, the government will still use the companies to service the loans.
According to the New York Times article, the Congressional Budget Office said that by eliminating the middle man, the government will save taxpayers $61 billion over ten years.

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