Federal Changes to Financial Aid are In the Works
Hi everyone, Brannon here.
Some interesting changes are coming to Federal Aid due to the current student loan Crisis. The federal government is trying to open things up for families. But keep in mind their answer is offering more debt.
To accomplish this, the Act grants the Secretary of Education temporary authority to purchase loans from lenders in the federally guaranteed loan program (officially called the Federal Family Education Loan Program) if the Secretary determines that lenders can’t meet the demand for student loans. The Act also authorizes the Secretary of Education to advance federal funds to guarantee agencies that are operating as “lenders of last resort” in the event they don’t have sufficient capital to originate new loans. The Act also dispenses with the requirement that students demonstrate an inability to borrow from other sources before turning to a lender of last resort.
In addition, the Act:
- Increases loan limits on unsubsidized federal Stafford Loans. The Act increases the annual loan limits on unsubsidized Stafford Loans by $2,000 for undergraduate students, and increases the total loan limits (for both unsubsidized and subsidized loans) to $31,000 for dependent undergraduate students (up from $23,000) and to $57,500 for independent undergraduate students (up from $46,000). (The difference between subsidized and unsubsidized Stafford Loans is that on subsidized loans, which are awarded on the basis of financial need, the federal government pays the interest on the loan while the student is in school, during any deferment periods, and for six months after graduation.)
- Under the new rules, dependent undergraduates will be able to borrow up to $5,500 in Stafford Loans during their first year of college ($3,500 of which can be subsidized); $6,500 during their second year (up to $4,500 subsidized); and $7,500 in the third, fourth, and fifth years of college (up to $5,500 subsidized). For independent undergraduate students, the new borrowing limits are $8,625 for the first year (up to $3,500 subsidized); $9,500 for the second year (up to $4,500 subsidized); and $12,500 for the last three years (up to $5,500 subsidized).
- Makes changes to the federal PLUS Loan program. Under the federal PLUS Loan program, parents can borrow up to the full cost of their dependent child’s college education, less any financial aid received. Currently, parents who take out a PLUS Loan must begin repayment of the loan 60 days after the last loan disbursement for that year. The Act gives parents the option to defer repayment for up to six months after their child has left school. In addition, under current law, parents with an adverse credit history are barred from obtaining a PLUS Loan, except under an extenuating circumstance. The Act temporarily classifies as an extenuating circumstance delinquencies of up to 180 days on home mortgages and medical debt.