Student Loan Bill Triggers Big Changes
By Emily Davidson for Credit.com
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.
If you are a reporter interested in learning more about the College
Cost Reduction Act, please contact Emily Davidson at emily@credit.com or
415-901-1559.
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