Federal Student Loans: Program Changes Ahead?

Well, the federal student loan program’s big moment is at hand. On Thursday, September 17th, the U.S. House of Representatives will vote on a proposed major overhaul of the student loan system. If the new legislation is passed, it will shut down the bank-based Federal Family Education Loan Program (FFELP) and issue all future federal student loans from the alternative Direct Lending program, which is funded by the U.S. Treasury.

Schools that currently participate in the FFELP will have until July 1, 2010, to shift all their existing student loans over to the Direct Loan system.

The Obama Administration proposed the FFELP shutdown based on estimated cost savings that would come from not having to pay government subsidies to banks and commercial lending institutions in the student loan business. The plan is to funnel the saved money into the federal Pell Grant program.

Although getting 4,000-plus schools ready to handle billions of dollars of federal student loans through the Direct Lending program in a year’s time would obviously be a gigantic tactical undertaking, it offers the appeal of a greatly simplified federal student loan system, in addition to the boosted Pell.

2 comments to “Federal Student Loans: Program Changes Ahead?”

  1. Is there any side effect of proposing FFELP shutdown?

  2. In fact, there are a number of changes that we should expect if FFEL is eliminated. Smart Money spelled out these changes in a recent article, and the team at the Student Lending Analytics Blog provides a quick roundup: Smart Money Looks Ahead And Asks “What Does Post-FFEL Student Loan Market Look Like?”

    Sandra Proulx
    Community Manager

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