Student Loan Bill Triggers Big Changes

President Bush signed the College Cost Reduction and Access Act of 2007 into law on September 27th. The bill passed the Senate and House on September 7th.

The bill is largely praised for including several increases in college aid with no new cost to taxpayers. However, some negative student loan industry changes have already taken place in response to the new bill.

Just yesterday, Credit.com learned that our student loan consolidation partner is not accepting new applications in response to this bill and is planning a major shift in their business model. Large student loan originator, Nelnet, has announced laying off 400 people out of their 3,300 workforce.

The College Cost Reduction and Access Act of 2007 includes:

• A reduction of student loan rates from 6.8% to 3.4% over the next four years.
• A $1,090 increase in Pell Grant amounts to $5,400 a year.
• A monthly payment cap of no more than 15% of borrower's income.
• Student loan forgiveness after 10 years from public service employees and after 25 years for all guaranteed borrowers.
• A 0.55% cut in government special allowance payment subsidies to for-profit lenders and a 0.44% cut for not-for-profit lenders.
• Lender loan origination fees increase to 1% from 0.5%.
• Loan collection agencies fees reduced from 23% to 16% of funds collected.

By funding the admirable student loan grant increases and rate decreases with subsidy cuts, this bill is causing major shifts in the way that student lenders operate. Smaller student lenders are particularly hard hit by the reduction in government support.

As the bill progresses, the full impact on the student loan industry remains to be seen. Consumers seeking a student loan or loan consolidation program should be aware that the industry is making some major changes.