Congress recently passed the College Cost Reduction and Access Act of 2007 (H.R. 2669); however, because the changes are funded by cuts to lender subsidies, many FFELP lenders have warned that the Act will negatively impact student loan discounts for any loan funded after October 1st.
What Will The Bill Offer?
FEDERAL STUDENT LOAN CHANGES:
- Cut interest rates in half on “subsidized” student loans over the next five years
Keep in mind that unsubsidized loans are not impacted. That means, in the case of Federal Stafford Loans, Independent Students will continue to pay the current fixed interest rate of 6.8% .
- Implementing a Competitive Loan Auction Pilot Program for FFELP PLUS Loans
An auction will be held under each State, in which eligible lenders will compete to originate Federal PLUS Loans. Only two lenders that offer the best bid will be allowed to lend Federal Grad PLUS and Parent PLUS Loans within the State.
This Pilot Program will prohibit students and parents from choosing from a much larger pool of possible lenders, and instead force them to choose between two lenders, effective June 30, 2009.
PELL GRANT CHANGES:
- Increase the maximum Pell Grant scholarship by at least $500 over the next five years, ultimately reaching a maximum scholarship of at least $5,200 by the year 2013
This increase benefits low- income students. The Pell Grant scholarship will ultimately reach a maximum scholarship of at least $5,200 by the year 2013, up from $4,050 in 2006. So, that is an increase of $1,150 over a seven year period. There is also an increase in the income protection allowances with Pell Grants.
Keep in mind that all of the above increases will give more money to current Pell recipients; however, it will not expand the pool of recipients.
- Increase the eligibility to receive a Pell Grant, effective July 1, 2009
There will be a gradual increase to the family income level under which a student is automatically eligible for the maximum Pell grant from $20,000 to $30,000.
AMENDING THE UPWARD BOUND GRANT:
- The goal of this grant, which is already made available to students, is to increase enrollment of low-income middle and high school students whose parents did not attend college.
Because this grant was previously rated as ineffective (meaning that the tax dollars were not used effectively), additional funds will be appropriated to this grant to try to make it successful.
ESTABLISH THE TEACH GRANT:
- Provide upfront tuition assistance to qualified undergraduate students who commit to teaching in public schools in high-poverty communities or high-need subject areas
The newly established TEACH Grant will provide $4,000 of tuition assistance each academic year to high-achieving undergraduate, post-baccalaureate, and graduate students who commit to teaching a high-need subject in high-need elementary or secondary school for four years.
In order to receive this grant, the applicant must serve as a full-time teacher for a total of not less than 4 academic years within 8 years after completing the course of student for which the applicant received the TEACH grant. This means the applicant cannot change their course of study within that time period; otherwise, they must repay the grant in the form of a Federal Direct Unsubsidized Stafford Loan.
ESTABLISH THE COLLEGE ACCESS CHALLENGE GRANT:
Payments will be made to States to assist them in carrying out specified activities and services relating to increasing college access for low-income students in the state.
Such activities and services include information for students and families regarding the benefits of attaining a postsecondary education, how to obtain and plan for postsecondary education, and career preparation.
FEDERAL PERKINS LOAN CHANGES:
- Extending the distribution of late collections on Perkins Loans
This is section of the bill woulddelay the date on which institutions must return to the Secretary late collections on Perkins loans to October 1, 2012.
LOAN FORGIVENESS CHANGES:
- Provide loan forgiveness to borrowers who serve full-time in areas of national need
This is a portion of our population that includes first responders, law enforcement officers, firefighters, nurses, public defenders, prosecutors, early childhood educators, librarians and others.
Such borrowers making payments on their loan for a period of ten years (which need not be consecutive) would be eligible to have 1/10 of the remaining loan balance forgiven for each of the ten years in which the borrower earned less than or equal to $65,000.
- Revise policies to allow public servants to have their Direct Loans and Direct Consolidation Loans forgiven after 10 years
Please keep in mind that this provision excludes any FFELP student loan and FFELP consolidation loan.
Also, in order to have the entire Direct Loan balance forgiven, the borrower must have made 120 payments on such loans after October 1, 2007, not be in default, and must be employed in a public service job at the time of forgiveness and have been employed in a public service job during the period when they made the 120 payments.
DEFERMENT CHANGES:
- Eliminating limitations and extending the deferment period of eligible members of the Armed Forces
This provision eliminates the 3-year limitation on the period for which eligible members of the armed forces may receive deferments on the interest on their student loans. It also extends this deferment period over 180 days after a member of the armed forces is demobilized.
Eligible members include those serving on active duty or performing qualifying National Guard duty during a ward or military operation in a national emergency.
FINANCIAL NEED CHANGES:
- Increasing the income protection allowance (IPA) to support working students
The income protection allowance is the median expense of families living at the lower living standard defined by the U.S. Department of Commerce. Parents with incomes at or below the IPA are not asked to make any contribution to their student’s educational costs. Those with incomes higher than the IPA are expected to use their income to pay for their student’s educational costs.
Effective July 1, 2009, the increased IPA will be available to qualified dependent and independent students.
How Are These Changes Being Funded?
This Act is made possible by slashing subsidies (this excludes the Federal Direct Lending Program) that the government pays to FFELP student loan lenders who provide Federally guaranteed loans.
As mentioned earlier, many FFELP lenders warn that this Act will negatively impact borrower benefits on Federal student loans. Because the subsidies are being slashed to such a degree (on top of other reductions), FFELP loans will not only offer less of a guarantee, but their student loan benefits to borrowers will also decrease effective October 1, 2007.
So What Does This Mean For Me?
Depending on your financial situation, this Act could be very beneficial. For instance, current low- income students may benefit from Pell Grant increase. Additionally, full-time employees working in the area of national need may benefit from the changes to loan forgiveness.
On the other hand, many students attending schools that participate in the FFEL Program will be at a disadvantage since FFELP lenders will be forced to reduce the loan discounts they offer in order to accommodate for the cuts in subsidies (which help fund the Act). Also, these borrowers will not benefit from much of the loan forgiveness changes, as they only apply to borrowers of the Direct Loan Program.
Click here to review the College Cost Reduction Act in its entirety.