By Hayley Wielgus
TYLER, TX (KYTX) - Tacked on to the healthcare bill is a measure that overhauls the federal college student loan system. CBS19's Hayley Wielgus explains how the new legislation will this affect students who plan to borrow money to attend college.
For decades students have been able to choose which private lender would originate their federal student loans. But starting July 1st, all students who take out federal student loans, will borrow directly from the government.
After graduating from Lon Morris College in May, Dedrick Weathersby will continue his musical theatre education at a four year college. So any federal student loans he takes out starting in July will be through the government's direct loan program, instead of his pick of private lenders.
"I feel it's a good thing but not having a choice I feel as being Americans we should have choices, but hey," Weathersby explained.
Proponents of the legislation say it will be less confusing for many students who struggled to decide on a private lender. But many financial institutions say it limits consumer choice and hurts their business.
Mark Rodgers of Citibank released a statement to CBS 19 that reads in part:
(Citibank) "Student Loan Corporation strongly advocated to maintain choice and competition in federal student lending... SLC remains well positioned to continue as an innovative and efficient leader of private student loans."
Those private loans will not be affected by the legislation. But under the new law, the federal Pell Grant will be increased by $200 per academic year.
"That affects students who are needy student that do much have much income or a lot of people in their households also going to college," said Kris Marquis, Lon Morris College Director of Admissions and Financial Aid.
Starting in 2014, borrowers experiencing financial difficulties will be able to cap their monthly loan payments at 10 percent of their discretionary income, that's down from the current 15 percent.
"The lesser the better, that's the bottom line because you'll have apartment expenses, car note, different things like that," said Weathersby.
Under the new law, the interest rate is expected to be lower on the parent loan for undergraduate students, or plus loan. That also helps graduate students since they are eligible to take out plus loans.
According to President Obama, the legislation could save the government $68-billion over the next decade. That's because the government will no longer pay subsidies to banks to administer federal loans.
