When President Obama signed health care into law last month, he simultaneously approved the Student Aid and Fiscal Responsibility Act (SAFRA), which will shift the way federal student loans are doled out and repaid.
Targeting both university and community college students, the bill aims to invest more money into Pell Grants and switches student loans from private lenders to the Direct Loan program through the United States Treasury.
The bill also aims to give more money to historically black and minority-serving institutions, simplify applying for financial aid using the FAFSA, offer federal loan repayment plan based on income, and save American taxpayers at least $61 billion within the next 10 years, while directing $10 billion back to the Treasury toward deficit reduction. The act takes effect July 1.
“This is about saving money and giving that money directly to students for tuition and living expenses,” said Elizabeth Bickford, University director of financial aid and scholarships. “It’s an opportunity to streamline the financial aid process.”
Opponents of the legislation were against the health care aspect of the bill, as well as SAFRA. Because SAFRA requires all colleges to become members of the federal Direct Loan program, lenders like Sallie Mae and banks cannot lend to universities, which opponents say will derail the recovering American economy. Sallie Mae reported that it will have to fire 2,500 employees.
“The student loan provisions buried in the health care legislation intentionally eliminate private sector jobs at a time when our country can least afford them,” Sallie Mae spokesperson Martha Holler told The Washington Post.
However, SAFRA doesn’t throw out private lenders altogether. According to the Department of Labor and Education, the bill makes private lenders of Direct Loans compete for contracts in which 100 percent of loans must be serviced by workers in the U.S., which proponents argue will better customer service and create more jobs on U.S. soil.
The act allows for investing $36 billion in Pell Grants, which will increase the award from $5,550 in 2010 to $5,975 by 2017. The act also aims to have Pell Grants match the cost of living by aligning the award with the Consumer Price Index by 2013. Oregon’s 4th Congressional District, which encompasses the University, will see nearly $80 million for Pell Grants.
“The result of SAFRA is that by having all schools participate in direct lending, the federal government saves money,” Bickford said. “This frees up lending for Pell Grants by increasing the maximum Pell Grants over the years. That loan money makes a lot of difference. We’re already expecting 100 more students who will qualify for it next year at
the University.”
SAFRA also changes how students repay loans. Previously, students had a fixed amount they had to pay back upon six months after graduating or leaving their institution. Students repay loans through the Income-Based Repayment program on 15 percent of discretionary income; as of 2014, repayment will be lowered by 10 percent.
“I certainly feel that this is the direction that we need to go in,” Bickford said. “We need to save money and make the funds available directly to students.”
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Dealing with student loans just got easier
Daily Emerald
April 5, 2010
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