Obama plans to stop government subsidies to banks and lenders for student loans. This will eliminate private lenders from the federal student loan program. Because of this, all new federal student loans, by July 2010, would only be made by the government’s direct lending program. This bill has received resistance and critics as they say it would amount to a nationalization of the student loan market.

Next year in July 2010, all new federally guaranteed loans will have to be obtained through the government’s direct lending program, and no longer from banks and other private-sector lenders such as Sallie Mae. Currently, 70% of student loans are originated from private lenders. 30% of federal loans are originated from the government.

This will mean that students will have a more simplified loan. Today, a lot of students are not sure whether the loan that they have is a federal loan or non-guaranteed loan as most lenders offer both types to students. If you are taking out a new Plus loans starting next July, you would get a lower rate. Currently, the rate is 8.5% through banks and 7.9% through the direct program. If the bill is signed, all new Plus loans would be 7.9%.

Also, with this bill, applying for financial aid for your education will be much easier. You will only need to import most information from your tax forms, and answer a simple question whether the family has more than $150,000 in assets, excluding a home, a business and retirement accounts. So no more answering a lot of questions about assets, all you need to write down is YES or NO to the question above. A YES would not get the student a based-need aid.

Additionally, Obama plans to make college more affordable by paying for annual increases in Pell Grants which keep pace with the inflation. Up to this point, Pell Grants have not kept up with inflation at all. Obama’s administration is lobbying for automatic increases to the Pell Grant maximum based on inflation as measured by the Consumer Price Index. Increases are currently at the mercy of Congress and have lagged behind college tuition rates that have risen sharply in the last decade.

This would benefit low-income students who qualify for Pell grants, because the maximum grant would be indexed to the inflation rate plus 1 percentage point.

Popularity: 2% [?]