Every student in the United States has benefitted or will benefit from a piece of legislation passed by President Barack Obama in 2010 called the Student Aid and Fiscal Responsibility Act. Yet, there are many students who do not know about this bill or its implications for their student loan future. It is essential to understand what this bill does and aims to do for students just like you.
First, banks (or, third-party lenders) can no longer lend federal student loans. These lenders served as middlemen who derived a profit on a deal that really only required the federal government and the student. Now, the Department of Education distributes loans through the federal Direct Loan Program directly to students.
Next, all graduated students will be required to pay only 10% of their income in loan repayment. This cap is a great benefit to students. President Obama said he did not want the burden of student loan repayment to discourage students from pursuing degrees in career fields that are essential—such as nursing or teaching—but perhaps not as lucrative as law or medicine. Before, your monthly bill was determined by 15% of your income.
In fact, to further encourage careers in public service, those who work in these fields will see their loans forgiven after 10 years of on-time payments. Obama also reduced the forgiveness period for all other student loans to 20 years. That means if a 22-year-old college graduate pays their loans on time, they don’t have to worry about paying their loans while also having to worry about their child’s college tuition.
Finally, President Obama increased the amount of Pell Grant money a student can receive. A Pell Grant is money given by the federal government to students in financial need and does not need to be repaid. For many low-income students, these grants can be what allow them to attend college.
So, remember this information, students and graduates. It may help you make career moves and plan wisely for the future.