Changes on the way for for student loan holders: Reform bill signed by Obama eliminates one federal program
Changes on the way for for student loan holders: Reform bill signed by Obama eliminates one federal program

Matt Fredmonsky
April 4, 2010

Record-Courier staff writer

The federal student loan reform signed into law by President Barack Obama last week means changes for students — and parents — who obtained federally backed loans to pay college tuition.

The reform, which was included in the health care overhaul bill, eliminates one federal lending program in which banks made the loans in favor of the other primary federal lending program that features the government as sole creditor.

The big change is the elimination of the Federal Family Education Loan Program, through which commercial banks lended to either educational institutions or directly to students for tuition expenses. Now, all students who seek federal financing will do so through the existing Federal Direct Loan Servicing Program, which operates with the federal government as the lender.

For students already attending about half of Ohio’s public institutions, including Kent State University, the loan program reform will have almost no effect because they are already FDLSP schools. Students at Ohio’s other universities that only used the FFELP, including the University of Akron, Youngstown State University and Cleveland State University, will see several changes regarding their federal student loans.

“We’re going to see a big change,” said Michelle Ellis, interim director of student financial aid at the University of Akron. “For the student, it’s going to be fairly painless. They’ll have to do a new promissory note, but they won’t see any change to their awards. This change also affects parents who are borrowing the parent loan for undergraduate students, because that type of loan is also under the FFELP.”

For U of A students and others currently using the FFELP, they will need to sign a new master promissory note — an agreement to repay the loan — in order to receive their funds from the government. The new promissory note will have to be signed prior to July 1 for students planning to attend summer classes.

New promissory notes can be completed online at the federal Web site for the program,

Another major part of the reform is a funding boost that will increase the amount of Pell Grant dollars available.

Once the reform takes effect, Pell Grant awards will increase annually based on inflation rates in the U.S. Bureau of Labor Statistics Consumer Price Index. The bill also appropriates $13.5 billion to fund projected shortfalls in Pell Grant appropriation levels through fiscal year 2012, according to the National Association of Student Financial Aid Administrators.

Mark Evans, the director of student financial aid at KSU, said the maximum Pell Grant award will increase next year by $200 to $5,550. About 27 percent of undergraduate students at KSU rely on Pell Grants to pay some portion of their tuition costs.

“The Pell Grants increasing is a good thing for all students,” Evans said.

Another plus for borrowers in the reform is a consolidation program. Students who attended a school, such as YSU or Akron, and have loans under the FFELP will be able to consolidate those loans with the new loans they will take out from the government. In repayment, the borrower will then make one monthly payment instead of several.

“It’s kind of like re-financing,” Evans said.

To qualify for consolidation, borrowers must not yet have entered repayment on at least one of the loans being consolidated.

The student loan reform does not entirely remove banks from the picture. FFELP contained the majority of the student loan business, but some banks will still work with universities such as KSU for alternative education loan programs.

Such loans, Evans said, come with higher interest rates attached and sometimes require a co-signer.

“For Kent State, our student loan program, there’s no changes,” he said.

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