What Obama’s new loan means for college students

DKS Editors

While we were on spring break, President Obama and Congress did their part to alter the way college students pay for their education. And while health care reform currently occupies the political center stage, students shouldn’t overlook the Student Aid and Fiscal Responsibility Act.

That’s because some experts say the bill will forever change the way a college education is funded.

President Obama said in order to keep the United States competitive in the global job market, higher education needs to be both affordable and accessible for the American public. The new law aims to simplify the lending process and make federal loans more competitive with their unregulated private counterparts.

As of July 1, the new law effectively eliminates the Federal Family Education Loan Program, which was the private/public hybrid model for students to borrow for college. In its place, the law expands Direct Loans and Pell Grants, streamlining students’ options.

In the Direct Loans program, the federal government acts as the lender, offering lower interest rates and longer grace periods for students to pay back money.

Private lenders and banks waged an aggressive lobbying campaign against the bill’s passage and for good reason: The bill strips private lenders from their ability to issue federal loans. It basically eliminates the middleman.

President Obama has the best interests of students in mind with this act. And many estimates show that it won’t deepen the country’s massive national debt. So while banks and lenders might oppose it, students should understand that the bill, with its caps on repayment and potential for loan forgiveness, could benefit them in the long run.

The change will cap college graduates’ annual student loan repayments at 10 percent of their income, spends more at community colleges and awards $2.55 billion to historically black colleges and universities.

President Obama has the best interests of the students in mind. Plus, this does not seem like it will affect the federal debt. Although most banks and direct lenders oppose this bill, students should care because they will benefit later.

Kent State students won’t see a drastic change just yet — the university has used Direct Lending for the past 15 years and phased out its use of the FFEL a long time ago. However, it’s important for students to understand the effect.

The above editorial is the consensus opinion

of the Daily Kent Stater editorial board.