WASHINGTON — Bigger grants for college students in need. Relaxed payment terms for students with loans. More money for community colleges.
The law that President Barack Obama signed Tuesday could mean big changes for hard-pressed students and colleges as the government becomes the primary issuer of student loans.
Q What does the overhaul of student lending do?
A Basically, it cuts banks out of the government-backed student loan business. Money for the loans has come either directly from the government or through private financial institutions, which have collected billions of dollars in federal subsidies to protect against default.
Under the changes, banks will no longer act as middlemen, and all colleges and universities must switch to the direct lending program by July 1.
Private lenders can still make student loans that are not backed by the government.
Q How much money will the government save?
A Taxpayers will save $68 billion over the next 11 years, according to the Congressional Budget Office.
Q What will Obama do with the money?
A A chunk of the savings will go toward Pell Grants for college students — to award more grants and to provide larger amounts. Community colleges also will receive funding.
Q What is happening to Pell Grants?
A More than $40 billion will go toward the grants, which are targeted toward students from low- and moderate-income families. From 2013 to 2017, the maximum award will increase to $5,975 from $5,550. The administration also expects more than 820,000 additional awards to be made by the 2020-2021 academic year because of the changes.
Q How else will students benefit?
A Students who have low incomes or meet certain other eligibility requirements and who take out loans after July 1, 2014, will see their payments limited to 10 percent of their discretionary income after graduation. Current law caps payments at 15 percent of income.
For students who make their loan payments on time, the government will forgive the balance after 20 years, instead of 25.
