A college aid reform plan, called the Direct Federal Loan Program, was included within the Health Care Bill which passed March 21. The new plan will replace private lenders, who loan students money for college, with the U.S. Department of Education.
Many people disagreed with passing the college aid reform in the health care bill because it is unrelated, but Avila University’s Director of Financial Aid Nancy Merz considers the program a win-win situation for students.
With the former program, students could pick which bank to borrow from. Merz said the banks offered incentives, like a lower interest rate, to market for the student’s business.
“Under the new Direct Federal Loan Program, these incentives go away, but what also go away are the subsidies that the Federal Government was paying those lenders,” Merz said.
Because Congress canceled the subsidies, money the government gives to foundations or companies, they have extra money to give as Pell Grants to students in need. A Pell Grant is a form of financial aid that students do not repay, unlike a loan.
Merz assures students starting college this fall that they will meet no difficulty in receiving a loan under the new program. Students who need a loan must fill out the Master Promissory Note, a legal agreement promising to repay any borrowed money. Merz said students could fill the note out in a few minutes online.
Students have many options for paying off the Direct Loans from the government. According to studentloans.gov, students can switch their plans of repayment if their financial situation changes. Merz said students do not have to begin repaying their loans until they are six months out of school.
Private lenders, including America’s Student Loan Providers, are against this bill because it takes their jobs and gives them to the government. In an article from washingtonpost.com, Ms. Elena Lubimtsev, a government-relations officer from Edamerica a loan providing company based in Tennessee, predicted the Direct Federal Loan Program will cut 30,000 jobs.
Although Merz said student loans will become more accessible for students, some students, like senior Holly Haywood decided not to apply for a student loan.
“My parents would rather get [a] loan [taken] out through their bank because it is an institution they have all their money with and feel they can trust,” Haywood said. “Personally, it is difficult to trust the government especially with the reforming and financial problems our country is facing, so I don’t think I would want to rely on the government with my money unless the interest rates were a lot lower than other institutions and the money was secure.”
Haywood thinks this new loan program will not be beneficial to students like her. Along with other high school seniors preparing for college, Haywood is dealing with many changes and would rather not deal with a new loan program.
Merz advises students to apply for as many scholarships as possible and to reuse their scholarship essays.
“Watch what you borrow,” Merz said. “Remember, sooner or later, it will need to be paid back. So if you don’t need the money, don’t borrow it. If you do have to borrow, don’t freak out.”
