Federal Financial Aid Changes 2010 - 2011: Making It Easier to Get Student Financial Aid
After years of watching how increasing tuition rates have been putting college out of reach for more and more students, President Obama and lawmakers have determined that the status-quo cannot continue. Obama has set a goal that by 2020, America will have the highest proportion of college graduates in the world. To meet this goal, the federal government has made changes to the financial aid application process and to existing federal financial aid programs. These changes are focused on making it easier for low and middle-income students to get federal financial aid to help pay for college. Recent and upcoming changes are described below.
Federal Student Loan Origination
As of July 2010, federal student loans can no longer originated by private banks. Up until then, schools were able to choose whether to have federal loans administered through the federal government directly, or through private banks. Students who already have federal loans originated by private banks will be able to consolidate these loans with direct loans to simplify the repayment process. The loans will be serviced by a small number of banks selected by the federal government. This change affects Stafford loans and PLUS loans.
Free Application for Federal Student Aid (FAFSA) Changes
The Free Application for Federal Student Aid, also known as FAFSA, is a cumbersome application that takes several hours to complete. It is believed that the difficulty of the application process prevents many students from applying for aid and deters many from attending college since they don't know if they will qualify for aid. There are proposals for significant changes in the future, but in the meantime, some improvements have been rolled out that make steps in the right direction.
Beginning in January 2010, questions that don't apply to certain groups of students are automatically skipped. For instance, low-income students no longer have to answer irrelevant asset questions and people who have lived in the same place for five years won't have to answer residency questions. Married students at least 24 years old have 11 fewer questions to answer and an additional 22 questions have been eliminated for everyone.
In a pilot project, financial aid applicants for the 2010-2011 school year are able to view and retrieve tax information from the IRS directly into the FAFSA. This is an optional feature that most applicants will have the ability to use and will save time and improve accuracy. Some other recent improvements include instant estimates about Pell grant and loan eligibility and links to information about graduation rates and tuition rates for colleges the student listed on the application.
Stafford Loan Interest Rates
Interest rates for subsidized Stafford loans, which are available to students who demonstrate financial need, will decrease from 5.6 percent to 4.5 percent on July 1, 2010 and to 3.4 percent on July 1, 2011. Rates for unsubsidized Stafford loans remain at a fixed 6.8 percent.
Increased Pell Grant Maximums
The maximum Pell grants award has been increased to $5550 for the 2010-2011 school year up from $5350 in 2009. Additionally, starting in 2013, Pell grant increases will be tied to the Consumer Price Index plus one percent rather than being subject to the yearly budget appropriations process. Students may now also get additional Pell Grant funding if they attend school during the summer in addition to the full academic year.
American Opportunity Tax Credit
The American Opportunity Tax Credit, formerly known as the Hope Scholarship Tax Credit, has been increased to as much as $2500 per student per year for 2010 tax returns. Eligibility has been expanded by allowing the tax credit for students in their third and fourth years of school rather than just the first two.
Other Topics under Discussion
Expected Family Contribution calculation
The method used to calculate a student's Expected Family Contribution (EFC) currently includes both income and asset information. The EFC is used to determine eligibility for federal and other financial aid. A proposal exists to simplify the FAFSA by setting an asset threshold that would require only one question be answered. If a student's family has assets over the threshold, they would automatically be eligible for only non-need based loans while everyone else would still be considered for grants and subsidized loans, depending on their income level.
GI Bill
There are ongoing discussions about expanding the vocational and technical training that is covered by the GI Bill. Although there is support for the idea, there are issues regarding how non-degree programs charge students and refund policies when students don't complete a course. There are also discussions about covering the costs of preparatory courses for college admission tests.
Perkins Loans
The existing Perkins loan program, which provides subsidized loans to needy students, may be replaced by a Federal Direct Perkins Loan program which would fall under the existing Federal Direct Loan Program. It is unclear at this time how this change would affect students.
Resources
U.S. Department of Education's Student Aid on the Web: Income Based Repayment Plan
U.S. Department of Veterans Affairs: G.I. Bill Website
U.S. Department of Education's Student Aid on the Web: Stafford Loan Interest Rate Reductions