Who knew that new health care legislation could so impact higher education funding?
As part of the parliamentary maneuvering called reconciliation that enabled supporters of revamping much of the legal framework of America”™s health care to win passage of the health care law last March, major changes in federal student loans were also adopted.
But while the results of new health care laws may take a decade to become clear, at least one expert said families and students should benefit immediately from the new education loan programs.
Called the Health Care and Education Reconciliation Act of 2010, the education aspect changes various aspects of the federal student-loan program, from the way students and parents access federal loans to the options for paying them back.
The new rules took effect July 1 and are making for an extremely busy summer in financial aid offices nationally, said Daniel Sistarnik, director of financial aid for SUNY New Paltz.
“Basically, in the simplest terms, the federal government has taken over the student loan programs,” said Sistarnik. “There are no more lenders involved, that has all changed as of July 1. Everyone is now in the federal direct loan program.”
Some observers see the new program as benefiting education and families. “The main impact on families is actually positive” said says Mark Kantrowitz, publisher of the web site FinAid.org  that offers information on financial-aid rules and scholarships.
Kantrowitz said the new system simplifies paperwork and provides lower interest rates on new loans. Now that all Parent PLUS loans are under the Direct Loan Program, for example, the fixed rate for new Parent PLUS loans is 7.9%. Some lenders had charged 8.5%. And the fixed rate has dropped, to 4.5% from 5.6%, for new subsidized Stafford loans for undergraduates.
Kantrowitz said that private lenders were not matching such rates in recent months, even though at one time competition was driving rates lower. “All the discounts ended with the (onset of the) credit crisis,” he said.
Moreover, said Kantrowitz, more students and parents are likely to qualify for loans under the federal stewardship. He said his analysis of rejection of student loan applications showed private lenders rejected 42 percent of loan applications while the federal government rejected 21 percent. He said his analysis indicated that private lenders were unintentionally or otherwise, using a more stringent acceptance criteria than federal regulations allowed.
The Department of Education also has increased the maximum Federal Pell Grant award to $5,550 for the 2010-2011 academic year, from $5,350 for the 2009-2010 school year. And with the federal effort, students have a greater grace period after leaving college to begin repaying their loan and more help if repayment is deferred.
Sistarnik said it is “true to a degree” that the new system for student loans is  is more efficient and more inclusive but said being part of a massive federal program is likely to have a down side. “I really think the customer service end will suffer,” said Sistarnik. “You have 14 million people all getting into this loan program at once.”
Kantrowitz said he thinks Congress will soon have to provide more resources to fund better federal programs that will help students avoid defaulting on their loans. He said such “aversion” programs ideally are preventive, ongoing through the college career and after graduation.
And though he said there was “a lot of fear” among college administrators about the switch to a new student loan system, “So far, most colleges I”™ve spoken to say it”™s going a lot more smoothly then they expected,” said Kantrowitz.
