Following Tuesday's enactment of the Health Care and Education Reconciliation Act of 2010, the College's financial aid program will shift to accommodate direct lending of student loans from the federal government rather than from private lenders, a process which will streamline the lending process, according to Virginia Hazen, College director of financial aid.
Historically, the federal government provided funds to private lenders to encourage loans to students, with the government assuming the loans' risk but receiving no returns from the loans. Under the new program, passed as part of federal health care legislation, the government will provide and manage student loans directly.
The switch from the Federal Family Education Loan Program to the William D. Ford Federal Direct Loan Program, which is expected to occur in July, will affect approximately 900 Dartmouth students, according to Hazen. The students will have to sign new promissory notes with the Department of Education.
"[The change] will mean nothing other than it will make it easier for [students] because they won't have to find a lender," Hazen said. "It's just changing the source of the students' loans."
The measure is aimed at improving efficiency in loan distribution and enabling more students to pursue degrees and certificates in the midst of uncertain economic conditions, Democratic National Committee Chairman Tim Kaine said in a national press conference call held Tuesday.
"For our students, it's going to be easier because the bank system in this credit environment wasn't working," said Gordon Dino Koff, director of financial aid at Dartmouth Medical School.
Some individuals will experience lower interest rates as a result of the Federal Direct Loan Program, including graduate students and parents who have taken out loans to pay for their children's education, Hazen said.
"It's still a federal loan and still backed by the government," Diane Bonin, director of financial aid at the Tuck School of Business, said. "We don't anticipate very much change in terms of eligibility and processing."
While opponents argue that the shift to direct lending will increase government spending at a time of economic instability, the measure is expected to save $68 billion in subsidies that were being paid by the government to private financiers, Kaine said.
"The opposition in this case is relatively unprincipled," economics professor Charles Wheelan said. "They're arguing to keep a system that really at bottom is a government loan program dressed up in private lender clothing."
Around $10 billion of the anticipated savings will be used to "pay down the deficit" and the remainder will be used to expand aid and help people acquire skills needed to raise human capital and bolster the economy, Kaine said.
"Many students who would forgo college next year due to financial hardship will have the opportunity to pursue their education," College Democrats of America President Katie Naranjo said in the conference call.
The measure will also increase the size and availability of Pell Grants, which are federal scholarships for low-income students, according to Kaine. Individual grants will increase from $5,550 this year to $5,975 by 2017, Kaine said.
The law enables recent college graduates to devote smaller portions of their income to the repayment of student loans, capping the amount at 10 percent of yearly income rather than 15 percent, Naranjo said.
The College does not expect the amount of financial aid provided to increase as a result of direct lending, according to Hazen.
Kaine said student aid reform may help five million Americans earn degrees and certificates that they would not have been able to afford otherwise.
