President Obama’s proposed tax cuts could make major changes in the federal student loan program. The biggest change is that the role of private lenders would be eliminated, thereby saving the federal government approximately $6.5 billion. What does this change mean for students?
Previously, the money allotted for Pell grants would have run out, but now the grant program will not only remain intact but will “rise from $5,550 [per student] this year to $5,975 in 2017,” according to Patricia Murphy’s column The Capitolist for “Politics Daily.” Murphy cites Education Secretary Arne Duncan who explained that of the $61 billion in savings, $36 billion would be put back into Pell grants while the rest of the money would be used to reduce federal debt.
Students with existing loans will not see any changes, however, the Income-Based Repayment program will allow “some borrowers to cap their monthly payments on federal loans at 15 percent of their discretionary income,” Murphy states. For new borrowers, the cap would drop to 10 percent and loans must be repaid in 20-25 years. After that window elapses, “the balance of the loan may be forgiven,” Murphy said.
Ultimately, students will see changes in customer service as loans will be managed by the Department of Education instead of private lenders. The Senate passed the bill today, and the House will vote within a few days. The White House is optimistic the bill will pass. If the bill passes, changes will take place after July 2011.