Student Loans

New Federal Student Loan Laws – A Panacea Or a Disaster?

Laws change frequently, more often than most people think. The same is true of legislation regulating federal student loans. Surprisingly for many, it has changed drastically with new healthcare regulations. The good news is, however, that almost all of the recent changes actually benefited students.

Student Loans Have Always Been Confusing

Financial aid has always been confusing to many, especially for the ones not familiar with federal student loan regulations. New laws are aimed to simplify qualification for loans, as well as to make them more affordable by presenting more favorable repayment terms. While new legislation is aimed to save federal spending in order to cover the budget deficit, more efficient approach supposedly would ease up more financial aid available to students.

Recent Changes Aim To Bring More Benefits to Students

The major changes affected the repayment terms of student loans. A current income cap of 15% that may be utilized for repayment, is reduced to 10% under new regulations. Also, a maximum loan repayment term limit is reduced from 25 to 20 years. Both of these are effective tools helping many people enjoy higher standard of living and worry less about their debt. New legislative acts also increased the amount of federal grants for students. A previous annual maximum of $5,300 on federal grants is now increased to $6,000 per year. One of the best features of recent student loan changes is additional funding reserved to sponsor retraining of unemployed individuals through a network of participating community colleges. Given the current state of economy, such changes may be of great help to many families.

Private Lending Is Dying?

Currently there are two student loan programs: government funded federal loans and loans available from private lenders with government backing, called Family Education Loan Program. New legislature brought an end to government-backed private lending effective July 1, 2010. Under newly adopted laws, the government is no longer going to subsidize private lenders. While such measures would greatly decrease the amount of student loans available from private institutions, since those could not benefit from government paybacks on defaulted loans, they also allow for great savings of federal spending, covering the holes in the budget. Sallie Mae Corporation and private banks have already expressed their unhappiness with new regulations. Sallie Mae, the largest private student loan provider in the United States, has already announced plans of eliminating over 2,500 jobs due to recent legislative changes.

Long Term Perspectives Are Unclear

It is difficult to project long-term consequences of recent changes to student lending laws. It is obvious that private lenders would be less motivated to loan money to students, as they would face higher underwriting risks after new changes are adopted. It does seem like, however, that government is eager to fill in the gap with student loans featuring lower interest rates and flexible terms. It is highly recommended than students, willing to finance their educational activities, should carefully consider their options to ensure they get the best terms possible under new legislative changes, whether they consider obtaining student loans from government or from private lenders.