U.S. Department of Education Marks Historic Day in Higher Education

Archived Information

U.S. Department of Education Marks Historic Day in Higher Education

Changes to Financial Aid Programs Increase Access to Higher Education for Millions of Americans

July 1, 2010

Federal student aid will increase and become more accessible for millions of college students and their families under provisions of the recently passed Health Care and Education Reconciliation Act of 2010, which take effect today. The biggest and most important change is the elimination of the bank-based, Federal Family Education Loan (FFEL) Program. President Obama made the transition from FFEL to the Direct Loan Program the biggest priority of his higher education agenda. Students will also see larger Pell Grants and new help repaying their college loans.

Beginning today, all new federal student loans will be made through the Direct Loan Program. Under this program, students borrow directly from the Department of Education instead of banks. This change will save the federal government $68 billion over the next 11 years, according to the Congressional Budget Office.

"Today is a historic day for Americans who are pursuing a college education. We are one step closer to achieving the President's goal of having the highest proportion of college graduates in the world by 2020," U.S. Secretary of Education Arne Duncan said. "These changes will expand educational opportunities for millions of students and families and will make it easier for them to pay for college."

The new law improves access to higher education, increases the availability of federal aid for college, and offers students and families greater flexibility in managing their student loan obligations.

Transition to the Direct Loan Program

The Direct Loan Program operates as a public-private partnership leveraging the federal government's lower cost of capital with the expertise of the private sector. While the Department of Education provides the capital for all new loans, private sector partners disburse, service and collect the loans.

A majority of the 5,106 domestic schools participating in the federal student loan programs have successfully transitioned to the Direct Loan Program. Several schools operating on alternative academic schedules may not originate their first loan for several more months, some as late as December.

"Schools are transitioning to the Direct Loan Program on schedule and will continue to do so throughout the remainder of the year," said William J. Taggart, Chief Operating Officer of the Department of Education's Office of Federal Student Aid (FSA).

FSA is working closely with higher education institutions to prepare for and complete this transition. In the past nine months, FSA has provided training to over 10,000 financial aid professionals from schools around the world participating in the federal student loan programs.

Increases in Pell Grant Awards

Pell Grants remain the foundation of federal student aid. The cost savings generated from the transition to the Direct Loan Program enabled an increase in the maximum Federal Pell Grant award for the 2010-2011 academic year to $5,550, an $800 increase since the president took office. Student loan reform will also provide a more reliable and predictable source of funding in the future by tying annual increases in the Pell Grant award to the Consumer Price Index.

The Federal Pell Grant Program provides grants to America's neediest students. In academic year 2010-11, the Department will provide an estimated $32 billion in Pell Grants to some 8.4 million students.

Improvements in the Income-Based Repayment Program

While college remains an excellent investment, high student debts may make it difficult for borrowers to weather hard times or to choose public service careers. Today also marks the first anniversary of the Income-Based Repayment (IBR) Plan, a repayment option for federal student loan borrowers that makes monthly payments more affordable by tying repayment obligations to income and family size.

New regulations that take effect today will expand eligibility for IBR. As a result, borrowers who could not benefit from IBR based upon the size of their initial debt, but whose debt has grown due to accrued interest, may now qualify. The new rules will also eliminate the "marriage penalty" facing many married couples by considering total federal student loan debt of the couple when calculating eligibility for IBR.

The IBR program will be further expanded in 2014 due to legislation signed by the president to help an additional 1 million borrowers. Also today, the interest rate on new subsidized student loans will fall from 5.6 percent to 4.5 percent.

"The Department is committed to making college affordable and accessible. These changes will help more students realize that a college education is within their reach and will enable more Americans to go to college and attain a degree," said Secretary Duncan.

For more information about the Obama Administration's efforts to make college more affordable and accessible, please visit: studentaid.ed.gov.