President Obama Student Loan Reforms for 2010

President Baraka Obama has been hard at work on student loan reforms. If the president gets his way, this proposal will reform the system for organizing and distributing student loans. It may be one of the most significant pro-education policy reforms we have ever seen.

An interesting piece in The New York Times shows a preview of President’s Obama major administration proposal as follows:

Pell Grant Proposal - In years past, the size of Pell grants, which go to the neediest students, depended on the budget in a particular year. The administration’s proposal would end that.
Beginning in the 2010-11 academic year, the maximum Pell grant would rise with inflation and the grant would be indexed to the Consumer Price Index plus 1 percent. Over all, the maximum Pell grant in 2010-11 would be $5,550, up from $4,731 in the 2009-2010 school year (note that the size of the grant awarded to an individual student depends on that student’s financial circumstances).

Lenders - Probably the most controversial part of the proposed budget involves an issue that most students do not care about: where their loans come from. The administration wants to get rid of the federally guaranteed student loan program, called the Federal Family Education Loan Program. Under that program, banks and other companies (like Sallie Mae) have provided loans to students for years at rates set by Congress. The loans are guaranteed by the government.

Under the Obama proposal, students would borrow directly from the government. Students could still borrow from banks, but the loans would not be guaranteed and the interest rate would not be set by the government.

Loan Amounts - This is actually the more important issue for students and families. The administration aims to provide borrowing options for students to make it easier to pay for college without turning to private lenders, primarily by expanding the Perkins loan program.

The administration wants to make the loans available at all colleges and universities in the country — more than 4,000 institutions, up from the current 1,800. It also wants to sharply raise the total amount of money available, to $6 billion from $1 billion a year.

In addition, the administration wants to increase the amount individual students can borrow through the Perkins program to match what is available through the Stafford loan program.
The Stafford program provides up to a total of $31,000 ($5,500 a year in loans to first-year students, $6,500 to second-year students and $7,500 to upperclassmen).

Currently, undergraduate students can borrow up to $4,000 a year and up to $20,000 over all through Perkins. The bad news is that interest on Perkins loans would accrue while a student is enrolled. That is one of the ways that the government envisions paying for those Pell grant increases.

Perkins loans are available based on financial need, so you have to fill out the federal financial aid form, the Free Application for Federal Student Aid, or Fafsa, to get one.

Overall, although the changes that the administration wants are broad, the impact on individual students may be modest — a few hundred dollars more in grants, a few thousand dollars more in loans. But, as any indebted college student knows, every little bit helps.