The projected impact of the Health Care and Education Affordability Reconciliation Act of 2010 on education seems to be a split between possible victory for academic institutions and direct loss for providers of federally guaranteed student loans.
“For universities, I think it will be a real win for our students,” said Mary-Jane Foster, vice president of university relations at The University of Bridgeport and member of the board of directors at Yonkers, N.Y.,-based Hudson Valley Bank. “Direct lending by its nomenclature takes somebody out of the middle and should provide a more direct access for students. It should become simpler. It should become cheaper. And, it looks like more funds will free up.”
All Federal Stafford, PLUS Loans and Consolidation Student Loans will be funded through the federal Direct Loan Program, which may be applied for through individual academic financial aid offices.
It is estimated that the federal government will save some $68 billion within the next decade.
The bill allots for an increase in Federal Pell Grants from $4,860 to $5,500 in 2013 funded by about $36 billion saved through reform measures; college graduates can expect a 10 percent cap on annual student loan repayments beginning in 2014, according to the White House website.
Effective July 1, 2010, federal student loans will be funded directly from the government instead of private financial institutions.
Hudson Valley Bank will not be affected, Foster said, but “how the other banks replace the money, I don”™t know. But there is no question that it will be difficult.”
Thomas J. Powers Jr., chief executive officer of Mohegan Lake-based Hudson River Teachers Federal Credit Union, said the credit union offers the Sallie Mae Smart Option Student Loan and thus, will not be affected because “we do private loans.”
“We make our members aware they should apply for all the scholarships and grants that may be available,” he said. “We recommend they do that first, work with the financial aid office to see what federal aid they may qualify for and after they look at what the rates are and how the loan is structured, they may still need more loan money. And that”™s where we fit in.”
Like Foster, Powers recognized the reality of the elimination of said middleman in the new loan process.
“I”™m kind of at a loss on the lending side, because obviously now the debt is going to be debt to the government, whereas before it could have been debt to Citibank or a debt to Chase, which they would manage on behalf of the federal government,” he said. “The federal government guaranteed those loans, so they”™re moving from the balance sheet of the banks to the balance sheet of the government. That could very well be good debt for the government because they”™re obviously making interest off of it.”
Powers said he could not compare the asset liability management of the government with the banks, but that “my take on the whole thing is it goes back to fairness.”
The changing tide within university financial aid offices means more work to smooth transitional seams.
“I checked with our financial aid office and we have been in transition for weeks so we can hit the ground running, which is important,” Foster said. “Once you have accepted students and they”™ve received their letter, they want to know their financial liability.”
