If you’ve been looking for extra help to pay for college, you can thank President Obama. This week, the president signed a law that changed the way federally-guaranteed student loans will be distributed.
Most of these loans have usually been handled through banks and other lending institutions, but after July 1st, these loans will be given to students directly by the Federal government.
How does this help you? The banks made a profit off of these loans when they charged processing fees to the US Government.
Since the government no longer has to pay these fees, they’ll use most of the money for Pell Grants – that’s money for college that doesn’t have to be paid back by the students. Some of the remaining money will go to community colleges and historically black colleges and universities.
In addition, the amount of loan students have to pay back will change. Beginning in 2014, students will only have to pay back 10% of their discretionary income in student loans.
This means that once you’re finished with college, you won’t have to worry that all of your paycheck will be going to the government to pay off your school loans.
While this is great news, there are some things to pay attention to in the next few months:
- These changes don’t occur until July 1st of this year, so if you’re taking out guaranteed student loans for spring classes, you’ll still have to work with a bank or lending group.
- Since the banks will no longer be making money off these loans, there’s a good chance the bank you’ve been working with will try to get you to switch out of guaranteed student loans in to a different kind of loan – a loan they can make money from. If you’re taking out loans for spring classes, read your contract carefully to make sure you’re still getting a guaranteed loan from the Federal government.
- In addition, watch your mail and e-mail for announcements from your bank about new loans or “easy switch” programs that could “automatically” put you into a different loan with a higher interest rate. If these loans aren’t federally guaranteed, they won’t qualify for the 10% repayment cap, so be sure to read the information carefully.
- You should also keep an eye out for agencies or companies who want to “help” you convert your bank-based loan to a Federal-based loan. Part of the reason President Obama signed this bill was to eliminate the middle man, so it’s very unlikely you’ll need anyone to transfer your loan – the Federal government should handle this without any help at all.
- There’s also a good chance you will receive something either from your school or the Federal government about the switch in loans, and what it means to you. It may take a few weeks for this information to get sent, but if you haven’t heard anything by late May, contact the financial aid office at your school for more information.
- If you’re not going to take classes until fall, check with your school after July 1 to make sure you’re still going to receive the money you qualify for. The changeover from banks to the Federal government will probably be a smooth one, but you want to make sure your name doesn’t get left off the list of eligible students.
More money means more opportunity, and that’s always good news. As the changes come into effect, remember the rules of a good student and a savvy consumer – when in doubt, ask.
