Student Loan Law to Help Students, Colleges

By Darlene Superville, Associated Press Writer

WASHINGTON (AP) — Bigger grants for college students who need them. Relaxed payment terms for students with loans. More money for community colleges and historically black institutions.

The law that President Barack Obama signed Tuesday could mean big changes for hard-pressed students and colleges as the government becomes the primary issuer of student loans. But just whom will that affect and how?

Q: What does the overhaul of student lending do?

A: Basically, it cuts banks out of the government-backed student loan business. Money for the loans has come either directly from the government or through private financial institutions, which have collected billions of dollars in federal subsidies to protect against default.

Under the changes, banks will no longer act as middlemen, and all colleges and universities must switch to the direct lending program by July 1. Many already have made the switch in anticipation of the new law.

Private lenders can still make student loans that are not backed by the government, and they will continue to have contracts to service some federal loans. But the new law represents a significant change in what has been a multibillion-dollar business for the banking industry.

Q: How much money will the government save?

A: Taxpayers will save $68 billion over the next 11 years, according to the Congressional Budget Office.

Q: What will Obama do with the money? How will this affect students and their parents?

A: A chunk of the savings will go toward Pell Grants for college students — to award more grants and to provide larger amounts. Community colleges and institutions with predominantly minority populations also will receive funding.

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