A $200 increase in Pell Grant award levels and other financial aid benefits went into effect Thursday, easing the burden of student loan payments for millions of undergraduates and recent graduates across the nation.
The changes, enacted by the Student Aid and Fiscal Responsibility Act, not only increase the annual Pell Grant scholarship, but also lower interest rates on subsidized federal student loans, make all student loans a part of the Direct Loan Program and establish in-school consolidation for student loans.
In addition, federal loan payments will be capped at 15 percent of the borrower’s income, and any remaining debt, including interest, will be waived after 25 years.
“Every increase in Pell Grants is an important win to the students,” said Edie Irons, communications director for the Institute for College Access and Success. “At the same time, college costs are rising quickly, and we want to see even more increases in Pell Grants in years to come.”
For the upcoming academic year, the maximum Pell Grant scholarship increased to a record high of $5,550, and beginning in 2013, Pell Grant award levels will be linked to the Consumer Price Index. The scholarship level will peak at $5,975 in 2017.
According to the article “Making College More Affordable,” published by the U.S. Committee on Education and Labor, approximately 8 million U.S. students rely on the Pell Grant scholarship each year to help pay for college.
In the 2008-09 academic year, 56,659 students in the U. California system received Pell Grants, including 8,041 at UC Berkeley.
Irons said the March bill changed the way loans are financed, freeing up to $60 billion over 10 years.
“The (Pell Grants) take a little bit of the edge off, but with tuition rising greatly, they are not keeping pace,” Irons said. “It is a welcome and significant increase.”
All new federal student loans will be administered by the federal government instead of through lenders. Unlike the private lender-based program, the federal Direct Loan program is safe from market swings, guaranteeing student access to low-cost federal college loans no matter the state of the economy.
All Direct Loans will be serviced by private lenders, but unlike bank loans, Direct Loans can only be serviced by workers in the U.S.
According to Nancy Coolidge, a coordinator for government relations in the UC Office of the President’s office of Student Financial Support, the changes will group numerous student loans together.
“Before you leave school, you could take all your loans and put them into one large loan, which makes it easier to manage all your debts,” Coolidge said.
Additionally, the new Income-Based Repayment program (IBR) will help borrowers manage their loans with payment caps based on income and family size. For most eligible borrowers, IBR loan payments will amount to less than 10 percent of their income and even less for borrowers with low earnings. IBR will also forgive remaining debt, if any, after 25 years of qualifying payments.
Irons said the changes will strengthen the Pell Grant system, which she called the foundation of the U.S. financial aid program.
“It is a good framework to build on,” she said. “We just need to invest more in Pell Grants and try to rein in college costs.”