Congress’ approval this week of an overhaul of the nation’s college aid system will mean more government funds for students, particularly those from low-income families.
But middle-income students also might benefit as the federal money frees up funds universities have used for financial aid.
The losers are private lenders, such as Lincoln-based Nelnet, that had received subsidies for issuing student loans.
The student loan provisions were included in a budget reconciliation package that also included changes to the main health care bill. The bill ends a program through which the federal government backed private student loans, shifting to a system where all loans are issued directly by the government.
That will mean a few minor changes at the University of Nebraska at Omaha, where about 7,000 students have been using the system that’s on the chopping block. The school already had made the decision to transition to direct lending before the legislation passed, said Randy Sell, UNO director of financial aid.
Unlike in the past, students seeking aid for next fall won’t be asked to select a lender. They will submit their applications for student aid, be notified of the results and sign new promissory notes, Sell said.
Students may notice slightly higher origination fees, and those with loans known as PLUS could see a slight reduction in their interest rate, he said.
“It’s a little bit like business as usual,” Sell said. “We’ll keep it as seamless as possible.”
The student loan legislation is projected to save $61 billion over 10 years. That is lower than earlier estimates because schools already have been switching to direct lending in anticipation of the changeover.
Of the savings, $9 billion is being used to offset the costs of the health care overhaul and $10 billion is slated for deficit reduction.
The remaining $42 billion is to go to education programs, including an increase in the maximum Pell grant for low-income students to $5,900 in 2019-20 from $5,550 for the 2010-11 school year.
That’s good news for the 3,300 to 3,700 University of Nebraska-Lincoln students who qualify for Pell grants, said Craig Munier, the school’s director of financial aid.
Munier said the increase in Pell funding will free up institutional money that will benefit other students.
“It also would benefit students from middle-income families who are also struggling to find a way to pay for college,” he said.
Meanwhile, elimination of the government-backed private lending program will have little impact on the university, because it switched to the direct lending program 15 years ago.
Future borrowers will have an easier time paying back student loans because the legislation reduces the share of income that a graduate must devote to loan payments and accelerates loan forgiveness.
Those who take out new loans after July 1, 2014, will have to devote 10 percent of their income to payments, down from the current 15 percent, and those who keep up their payments will have their loans forgiven after 20 years, reduced from the current 25, under the legislation.
Munier stressed that students should apply for financial aid even if they believe they won’t qualify or don’t expect to need it. He said students should make decisions about financial aid based on facts rather than assumptions. He also said that every year a certain number of students run into unforeseen trouble.
“A parent will die or their parents will divorce or a parent will lose their job,” Munier said.
"Having filed the (application) now, even if they turn down the sources of assistance that are offered … we can get help to students much more quickly than if we have to start the process from ground zero in the middle of a crisis.”
Ben Kiser, a spokesman for Nelnet, said Friday that the company is disappointed with the passage of the college aid overhaul.
Industry officials, Sen. Ben Nelson, D-Neb., and Sen. Mike Johanns, R-Neb., said it was an unnecessary government takeover that would cost jobs and lower the level of service to families.
Democrats who voted in favor of the overhaul say the lenders received guaranteed federal subsidies to lend money to students, with the government assuming nearly all the risk, fattening the bottom line for banks at the expense of students and taxpayers.
Nelnet, which employs about 800 in Lincoln and 2,100 nationally, expects to trim jobs as a result of the legislation, Kiser said. Those job losses will be in areas related to the origination of federal student loans, including customer support and sales.
It’s not yet clear how many jobs will be lost, he said Friday. The company will try to shift employees to other departments where it can, he said.
Nelnet was one of four companies selected last year to service federal student loans, and Kiser said the company has been diversifying its operations for years.
“We are very disappointed by this move; however, we have never been better prepared for changes to the student loan market because of our diversification,” he said. “We still have a very bright future.”