When President Barack Obama today signs the Health Care and Education Reconciliation Act of 2010 into law at Northern Virginia Community College, it will have ramifications not just for health care but the higher education industry as well.
The impact on Tufts students, and potentially other education institutions, however, may be minimal.
Tacked onto the reconciliation bill is a sweeping reform of the current Federal Family Education Loan (FFEL) Program for college and university students.
By cutting out commercial banks as middlemen and providing funds through a direct loan program, the reform will revamp the existing FFEL Program, under which private lenders receive guaranteed federal subsidies to provide student loans.
The bill also contains provisions for the estimated savings from this move to be directed toward initiatives to increase higher education funding.
The White House last year introduced a 2010 federal budget proposal containing the aforementioned recommendations.
However, the change from FFEL to direct loans will have little impact on students, according to Patricia Reilly, the Tufts director of financial aid and co-manager of Student Financial Services.
"The move from FFEL to direct loans has very little benefit for students," Reilly said. "The loans are the same; the terms and conditions are the same. It's an administrative project for the school."
According to the Congressional Budget Office, the FFEL program between 2005 and 2008 accounted for an average of 78 percent of federal student loans. However, since the credit crisis and the onset of the recession, that number has continued to decrease as private lenders have faced financial difficulties, and schools have grown to question the long-term validity of the FFEL program.
This viability question encouraged Tufts to completely switch to the direct lending program before the 2009-10 academic year, according to Reilly.
"We were concerned that what eventually happened, [the full shift from FFEL to direct], was going to happen," Reilly said. "We thought the FFEL program was going to go down, so we didn't want to wait. In response to the credit crisis, we were concerned private lenders weren't going to have the capital to provide loans. It seemed like a good change to make."
However, a large of number schools continue to provide the majority of their loans through the FFEL program. According to Reilly, for those schools, the new legislation will entail a significant bureaucratic adjustment.
"For a lot of schools, that will be a major change," Reilly said. Some people are anticipating that because so many schools will be making the change this year, there will be some administrative hold-ups."
Reilly said that the majority of the cost savings gained by eliminating private lenders from the loan system will benefit the government and taxpayers.
The Congressional Budget Office has estimated that the expanded direct-lending program will save taxpayers approximately $62 billion over the next 10 years.
While the new legislation calls for about $40 billion of the savings to be put back into higher education in the form of the Pell Grant program, Reilly warned that most of those savings will go toward paying for existing expenditure increases.
"We've seen a huge increase in Pell Grant expenditure this year," Reilly said. "A lot of the money saved in this legislation is going to pay for what we've already spent on Pell Grants this year."
Reilly added that as far as Tufts students are concerned, the new reform will not result in any noticeable change. The financial aid office's strategy will be unchanged, as the switch to direct loans was made last year, and the increase in Pell Grant funding is not significant enough to make a large impact.
According to the Office of Federal Student Aid, Pell Grants top out at $5,500 for the 2010-11 school year, while, according to Reilly, the average Tufts grant is between $20,000 and $30,000.
While the new bill ties increases in Pell Grants to inflation, the proposed Pell Grant for the 2019-20 school year will still only be $5,900, even on this scale.
Reilly did concede, however, that while the increases are small, they will be appreciated. "Every dollar helps, and it's good news across the board," Reilly said.
Dean of Undergraduate Admissions Lee Coffin noted that it is too early to tell how, if at all, the reform will affect the admissions process.
"Since it's so new, the new loan policy does not impact admissions strategy for this cycle, and it's premature to speculate about how, if or whether it affects us in the long term," Coffin said.
