As of July 1, all new federally backed student loans are now issued directly through the Department of Education's Direct Loan program, thereby eliminating the Federal Family Education Loan Program (FFELP), which had allowed financial institutions and other private lenders to offer federally guaranteed loans. Essentially, the government is eliminating financial institutions as the middleman for these loans.
Affected loans include subsidized and unsubsidized Stafford Loans for undergraduate and graduate students, PLUS loans for parents and PLUS Loans for Graduate and Professional Degree Students. Under Direct Loan, the latter two actually have lower interest rates than they did under FFELP (7.9 percent vs. 8.5 percent); and, the approval rate for parent loans tends to be higher. Many colleges had already converted to the Direct Loan program long before the Act's passage.
These changes do not impact the process of applying for federal grants, loans or work-study programs or change the amount of federal aid that students are eligible to receive. The first step for students interested in receiving federal aid continues to be completing a Free Application for Federal Student Aid (FAFSA), which is available online, through the school's guidance counselor or financial aid office, or by calling 1-800-4-FED-AID.
Most of the savings reaped by eliminating FFELP will be applied toward the Federal Pell Grant program. (Pell Grants are scholarships given to students from lower-income families that needn't be repaid.) Beginning with the 2010-2011 academic year (July 1, 2010 to June 30, 2011), the maximum Pell Grant amount increases by $200 to $5,550, where it will remain until 2013-2014. Then, for the next five years, the amount will be indexed for inflation, as measured by the Consumer Price Index for all Urban Consumers (CPI-U), capping out at $5,975 in 2017-2018.
For more details on the budgetary impacts of this Act, visit the website for the Congressional Committee on Education & Labor.
