Starting July 1, more federal money will be available for summer financial aid to help students in need, and likewise, more students will be eligible for assistance. Even some parents will have a better opportunity of qualifying for summer financial aid this year to make up for any shortages they may encounter in trying to meet tuition costs.
This is all due to a law signed by President Obama this past spring, which eliminates banks from the student loan process, and thus summer financial aid. Starting in July, all student and parent loans must come directly from the U.S. Department of Education, instead of through private lenders.
"Also, a slight change in eligibility rules will allow up to a half-million more families to qualify," says Mark Kantrowitz, publisher of FinAid.org.
The new law will help relieve some of the strain on students in the current economy, and it will even make more money available for summer financial aid to them and their parents.
As banks and credit union lenders get ready for the change and look for ways to stay competitive, those looking for student loans and summer financial aid likely will hear more pitches from banks and credit unions lenders offering alternatives to federal loans for summer financial aid. But good luck with that.
"Federal loans have so many built-in advantages," Tim Ranzetta, president of Student Lending Analytics says. "A parent with a financial setback can defer payments on PLUS, but a private lender may not give them that option."
Students will still be required to apply for loans through the Free Application for Federal Student Aid (FAFSA) website and work with their financial aid office as they did before for summer financial aid
Students who have existing loans with private lenders and currently seek a direct government loan might find it problematic that they owe money to two different lenders when they graduate. But the loans can be consolidated with Direct Loans so that, upon graduation, it is possible to make one payment.
For incoming freshmen the process will be simpler. Ideally, students new to financial programs and summer financial aid will be directed immediately to the U.S. Department of Education website instead of recommended to various lists of private lenders.
Congress made the change in the loan program to support the Pell Grant program. The change could save the government as much as $68 billion over the next 10 years, with the extra money flowing into the Pell Grant program. The new law also makes more families eligible for grants, which is a welcome change for low‐income families looking for summer financial aid.
The idea is that it won't cost taxpayers anything.
"It's actually not coming out of taxpayer's pockets," Piedmont Virginia Community College President Frank Friedman said. "It's coming out of fees that were going to banks who were providing loans for students to go to colleges.
"We can't afford to waste billions of dollars on giveaways to banks," Friedman said. "We need to invest that money in our students. We need to invest in our community colleges. We need to invest in the future of this country."
Summer financial aid streamlining starts July 1