The US Federal Government New Direct Student Loan Policy

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The US Congress had legislated a new bill in the last week of March, 2010 that will force the private money lending organizations out of the educational loan market. This reform is expected to bring billons of dollar to the educational exchequer to reorganize the different financial grant programs and rationalizing maximum amount of money to the new educational projects. For nearly forty years, the US banks are entertained with billions of dollars from the US federal government as subsidies to lend monetary support to the educational loans. These loans were federally guaranteed and the government was supposed to take all the risks.

Under the newly formed Direct Student Loan program, the banks are kept out of the picture and the policy is replaced by a more transparent direct money lending program. The program is directly monitored by the federal government. The money generated by this new program will increase the amount disbursed by the Federal Pell Grant program, a non-repayable educational loan program for the students from the low economic strata. There is an enhancement of nearly 4 Billion USD in Pell grant program.

There is a fallacy in the new student loan program. After much calculation, it was seen that there will not be much hike in the Pell grant Program. For the current fiscal year, the maximum amount disbursed through Pell grant system is USD 5350. If the new bill is legislated in its current form, there will be a mere hike of USD 350 during the financial year of 2019-20. This increase is at par with the current inflation rate.

Truly speaking, the cost of education is rising as the day progresses. It was calculated that, during the seventh decade of the last century, the Pell grant program was covering about two-thirds of the COAs (Cost of Attendance-actually represented by the institution itself). In its new shape, the Pell Grant Program will cover only a third of the actual cost of attendance. The final stint is that each year, more students are passing out with debt over USD 20,000.

One golden lining is that the new direct student loan program will make the students comfortable in repaying the loan amount. The rate of interest is much lower (only 7.9% instead of 8.5% in Direct PLUS schemes). It will share the income of an employed student through Direct Educational Loan program in repayment of loan amount. Partial waiver of loan amount will also be there. After four years from now, a student opting for direct student loan will have to repay 5% less amount than a student of current days in the same program. The remaining loan amount will be forgiven after 20 years of repayment in comparison to the current 25 years.

The direct student loan will be disbursed through over 5400 recognized institutions across the country. The application procedure is also made simple through FAFSA (Free Application for Federal Student Aid). The financial aid officer in these recognized institutions will directly scrutinize and process the loan application and student will receive loans from them. There will be no middleman or the private money lending organizations between the students and the federal government.

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