Earlier today in Alexandria, Virginia, President Obama signed legislation that will revamp the federal student loan program in what he called “one of the most significant investments in higher education since the G.I. Bill.”
The new law will remove private banks as intermediaries in providing loans to students. As the President stated, “For almost two decades, we’ve been trying to fix a sweetheart deal in federal law that essentially gave billions of dollars to banks to act as unnecessary middlemen in administering student loans. So those are billions of dollars that could have been spent helping more of our students attend and complete college; that could have been spent advancing the dreams of our children; that could have been spent easing the burden of tuition on middle-class families. Instead, that money was spent padding student lenders’ profits.”
The approximately $68 billion dollars in savings expected to be generated will be used to:
- Expand the Pell Grant program. Pell Grants will increase with inflation over the next few years, and the government will be able to provide 820,000 more grants by 2020;
- Invest in community colleges and Historically Black Colleges and Universities;
- Provide for caps on loan repayments at 10% of income; and
- Offer loan forgiveness programs. All eligible borrowers will have any remaining debt forgiven after 20 years (instead of 25 years), and borrowers who are in public service will have any remaining debt forgiven after 10 years.
In his address, President Obama stated that “for a long time, our student loan system has worked for banks and financial institutions. Today, we’re finally making our student loan system work for students and our families.”