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Sweeping changes in college loans signed into law at the end of March by President Barack Obama go into effect in three months. The reform measure pumps $40 Billion more into the Pell Grant Program, and it changes the face of who administers the popular Direct Loan program.
Adam Fleischer is a student at Columbus State Community College where seventy percent of students are eligible for need-based Pell Grants and loans to attend classes. He says if it weren’t for the government, he would not be going to school.
Fleischer receives Pell Grants and other assistance. In the college aid arena, grants are known as “free money,” since they do not have to be repaid. Fleischer says he’s happy to hear that more money is going into the Pell Program.
“Maybe I’ll be able to afford food towards the end of the quarter.”
Columbus State Financial Aid Director David Metz is also pleased to see more money going into the Pell program. Last year, Columbus State awarded $65 million in Pell grants to as many as 18,000 students. Depending on the amount received, Metz says the grant might fully cover their cost of tuition and fees. Pell grants are and will continue to be handled by the government.
The new legislation puts the Department of Education completely in charge of the government-backed Direct Loan program including two types of Stafford Loans. Students already receiving these loans are likely to notice only some limited procedural changes after July 1st.
Private lenders will see much bigger changes. The new law puts private lenders like Cincinnati-based Fifth Third Bank out of the Direct Loan business. Fifth Third Education Lending President Karen VanMeter says the bank has been a student loan provider for 40 years and last year handled more than $1 Billion in loan originations, making it the 14th largest student loan lender in the U-S.
“Fifth Third still does offer private loan products for students who need additional money beyond the government program. We have three, the Smart Options student loan, and we also have specialty products for law and med students.”
She admits these loans will be more expensive than the federal Direct Loans. As for the people who work in Fifth Third’s billion dollar student loan program, VanMeter declined to be specific about the future of their jobs.
“There are organizations out there that have announced some pretty significant cuts. We have not yet made decisions of if we will need to make cuts or how many.”
At Columbus State, David Metz has also reviewed staffing in recent months as the school prepared to take over one responsibility that had been handled by private lenders and others: monitoring and dealing with students who default on loans. Metz admits, the new law puts schools in the position of being, in effect, bill collectors.
“We will handle that much more in a manner of assistance and information as opposed to you must, you should, you will.”
Citing a default rate of just under 7%, Metz says Columbus State is in the process of filling a full time, temporary position focused on default prevention. He expects that position to become permanent.
And students, unlikely to see much change in federal loans after July first, need only be concerned about the bill that remains after graduation. The new law has some mildly positive news in this area. Students will be able to cap their monthly loan payments at 10% of their income. And, after 20 years of paying on their student loans, graduates will see the remainder of their debt forgiven.
But for now, Columbus State student Omar Lawson is working toward associates degrees in digital photography and automotive management. He’s been laid off from his job and is struggling to pay for classes.
“Eventuall,y once I graduate, I know I’m going to have to pay back all the loans. I know it will probably be a pretty tough time for me.”
Lawson is not alone. According to the nonprofit Institute for College Access & Success, two-thirds of new graduates from a four-year public or private Ohio college are in debt. The average debt at graduation: nearly $24,000.