New financial aid legislation, passed in conjunction with health care reform, will change the way loans work with Columbia’s financial aid next year.
On Tuesday—the same day President Barack Obama signed the final health care legislation into law—Columbia announced that it will transition to the Federal Direct Loan Program for the 2010-2011 school year.
The legislation, called the Health Care and Education Reconciliation Act, eliminates student loans provided by private lenders like Citibank or Sallie Mae, and will replace them with loans that come directly from the federal government.
Undergraduates who have previously borrowed using federal loans, including Stafford and PLUS loans, were informed of the change by Columbia via email on Tuesday night, but Dean of Financial Aid Daniel Barkowitz said that this is only a small percentage of the undergraduate population.
“Due to the 2008 enhancements to undergraduate financial aid at Columbia and specifically the elimination of loans as a required part of students’ financial aid packages, the number of Columbia College and Columbia Engineering undergraduate students directly impacted by this legislation is relatively small,” Barkowitz said in an email.
Barkowitz added that eligibility for these loans will not change, but the process for obtaining the loans will. Loans already taken out with private banks will continue to be managed by those institutions until a student graduates, at which point the U.S. Department of Education will consolidate the payments, he said.
Judith Scott-Clayton, an assistant professor of economics and education at Teachers College, agreed that the impact on students should be minimal.
“Most students will not notice a difference, which is good. The money will be saved by the government without really changing the way students experience the programs,” she said. “A lot of students may not pay attention—they’re just getting their federal student loan.”
Barkowitz added that more information will be sent to those receiving federal loans in the next few weeks. “Please know that we will provide as many resources as possible to ensure that this transition occurs smoothly,” he said.
Scott-Clayton explained that in the past, students with private loans had to pay back the banks plus interest, and the government would pay if the students defaulted. Still, the government paid the banks subsidies to take on student loans.
“The government has been assuming all the risk and paying for that privilege, and most people other than the banks, including objective sources, have said that the direct loan program is less expensive,” she said.
Supporters of the legislation have argued that this bill will eliminate the intermediary role of financial institutions for federal student loans—which will save $61 billion over the next 10 years.
The legislation will also provide more money for the Federal Pell Grant program, which provides grants for low-income students that do not have to be repaid.
Fifteen percent of the Columbia class of 2013 received Pell Grants, according to the Office of Undergraduate Admissions, and in 2008, Columbia reported that it had the highest percentage of Pell Grant recipients in the Ivy League.
These grants will now increase by $425 by 2017 thanks to inflation, and the Department of Education said that it expects over 800,000 more Pell Grants to be awarded in the next 10 years.
“It’s going to be about $36 billion [in additional funding]. This is not just more money for students [who already have grants], but for hundreds and hundreds of thousands of students today who don’t have Pell Grants,” U.S. Secretary of Education Arne Duncan said in a conference call Tuesday afternoon.
Duncan also said that applying for aid will soon be easier.
“Students will see a markedly simplified financial aid form. The form itself was a real barrier to applying to colleges. This will make it much more thoughtful and logical,” Duncan said. “That form scared people.”
Still, Scott-Clayton said a lot was left out of the legislation. “I think getting rid of guaranteed student loans and moving to direct loans is unambiguously a positive thing,” she said. “But there is disappointment. Everyone wanted a little more.”
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