There have been several changes in the college financial aid system. Here are the six most important developments.
1. More generous Pell grants
The Pell grant is one of the most important kinds of federal student aid that is available. Dependent students with family incomes up to about $50,000 are eligible for this kind of grant. Independent students who have low incomes can also avail this grant. Every year, the Congress sets the maximum grant. The maximum grant was $4,731 in 2008-09; and in 2009-10, it will be $5,350.
2. Income-based repayment for federal student loans
Keeping in view the borrowers income, the federal government has a new system that will limit the amount of monthly payments on federal student loans to a reasonable percentage of the borrower’s income.
If a borrower has an income that is bellow 150 percent of the poverty line, with respect to their family size, he will not have any payments due; others will have to give 15 percent of the amount by which their incomes exceed this level.
This system has faults and may not work properly. Some will have the government pay the interest, but others will see their debts grow as interest accrues. The remaining debt will be forgiven after 25 years, but this will be a taxable event, unless Congress makes a change.
Also, it’s important to keep in mind that this important new program covers only federal loans. It does not cater loans that are given by private lenders that don’t come with a federal guarantee.
3. A simpler FAFSA form
The students must complete the Free Application for Federal Student Aid (FAFSA), in order to become eligible for federal financial aid, or for any need-based financial aid from states, colleges, universities, or any other source.
According to The Department of Education, this process will become much simpler for students with increased reliance on "skip logic". The Students will be allowed to skip questions that are not relevant to their circumstances.
The Obama administration has requested the Congress to reduce the amount of information required to compute the eligibility for federal aid, so that the form can become even shorter and easier to complete.
4. Transfer of income tax data
If the students apply for the aid late enough in the calendar year, so that their previous year’s income tax data becomes available, they will have the data transferred directly to the FAFSA. Thus, it will not help the students applying for aid for the fall semester, unless the program is expanded.
However, it is believed by many that if this experiment is successful, the future students will not have to complete any separate financial forms at all. The information will be taken from the tax data to apply for financial aid.
5. Changing sources of college loans
The parents can also take loans for their children’s higher education. Parent Loans for Undergraduate Students (PLUS) are available, so that there will be less amount of debt on students when they graduate. But if the students themselves borrow, it is better to go for federal Stafford loans as compared to private loans.
Although private loans are widely advertised on the Internet, offering the students to borrow as much as they need without completing the FAFSA, but such loans will have much higher interest rates than federal loans.
Also, the protections for economic hardship that is available with federal loans will not be there with private loans.
Many people can get confused about what is actually a private loan. This is because the same private lenders such as Sallie Mae and banks are providing both private loans and federally guaranteed Stafford loans.
The Congress is currently debating finishing private sources of federal loans, but in the meantime, students should be clear about what they are getting.
6. Increasing financial aid (in some cases)
Although the economic recession has affected colleges and universities, both state and private, but they are still increasing their financial aid budgets.
It is possible that the school that has the highest fee might actually be the least expensive to attend, if financial aid is taken into consideration. And almost all states provide their own grant aid.
Even in California, there have been prediction about the demise of the generous Cal grant program, due to the state budget crisis, but valuable state grants are quite likely to remain available to students.
