Now that the hype surrounding the government's overhaul of the scandal-tinged federal student loan program has settled, students and parents seeking loans for the 2010 academic year are getting some surprisingly good news: Many 2010 federal education loans will be cheaper, easier to get, and easier to repay than they've been in recent years.
Starting July 1, the federal government will lower the interest rates on many student and parent loans.
In addition, to save billions of taxpayer dollars and eliminate incentives for private companies to give kickbacks to colleges, the federal government will stop paying banks for making federally backed educational loans. No longer will those wanting a federal loan to help pay for tuition have—or have the opportunity—to shop for a student Stafford or parent PLUS loan. Starting July 1, students and parents will just fill out the standard applications, and tell their college they want a loan. Colleges will send all federal loan applications straight to the government, which will make all the loans directly. That will reduce the steps and confusion for many, if not most, borrowers.
The change will mean a some extra minor hassles, however, for a few million students and parents who took out federal loans from companies like Sallie Mae or Citibank previously and who need new loans after July 1. Those borrowers will have to sign a new loan contract, called a Master Promissory Note. But that's not much of a problem, says Jan Brandow, director of financial aid and scholarships at the University of Missouri-Kansas City. Most borrowers will simply click over to the studentloans.gov website, and spend a few minutes filling out a form. After graduation, students caught in the transition might also have to sit through two different exit counseling sessions, and will likely receive two different sets of student loan bills: one from their first lender and one from the federal government. However, Brandow notes that most borrowers end up consolidating their federal college loans into a single debt after graduation anyway, and so end up getting only one monthly bill.
The rule changes are requiring many college financial aid officers to work out kinks, which means they may take a little extra time to respond to parents and students over the next couple months, says Sharon Hassan, director of financial aid at Goucher College in Baltimore. "This will be temporary...please be patient," she says, adding colleges are doing the work so that, for students, "the process will be easier."
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