Federal Student Loan Changes

On March 30, 2010, President Obama signed the Heath Care and Education Reconciliation Act of 2010, which mandates all schools process loans through the Federal Direct Loan Program (FDLP).

This legislation will change the federal Stafford loan, PLUS loan (for parents and graduate/professional students), and consolidation loan application process.

All federal student loans will now be made directly through the U.S. Department of Education, effective July 1, 2010.

If you have loans with a first disbursement of funds before July 1, 2010, or if your loans are already in repayment, these changes will not affect you.

Your school will be providing more detailed information in the near future. If you have questions after reviewing your school's information, please contact your school's Financial Aid Office.

Federal Student Loan Changes FAQ

When will the student loan reforms take effect?

All new federal Stafford loans and PLUS loans for parents and graduate students will be originated by the U.S. Department of Education beginning July 1, 2010. All schools of higher education must transition to FDLP by that date.

Students and families can still take out alternative (private) loans through banks and other lending institutions. Alternative loans should be used only to fill in gaps in your financial aid package because they typically have higher interest rates and less attractive repayment benefits.

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What do I have to do to get my loan funds for 2010–2011?

You still have to complete the FAFSA (Free Application for Federal Student Aid) for Stafford and/or graduate student PLUS loans.

Borrowers will have to complete a Master Promissory Note (MPN).  Borrowers already in school will have to complete a new MPN. 

You will accept or decline your federal student loans through your school, which works directly with the federal government. For parents interested in a PLUS loan, completing the PLUS Loan Information Form will initiate the application process.

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Does the legislation affect existing loans?

Any existing loan that has a first disbursement date of funds prior to July 1, 2010 will not be affected.

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How does the legislation affect the Pell Grant?

The federal Pell Grant is a need-based award. The legislation provides $36.1 billion to the Pell Grant program over the next 10 years. The maximum award for the 2010–2011 academic year will be $5,550. Beginning in 2013, the maximum award increases at the rate of inflation (referred to as the Consumer Price Index).

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Are there changes to the repayment options?

Beginning July 1, 2009, a new income-based repayment (IBR) plan will be available to student FDLP loan borrowers. Under this plan, your required monthly payment will be based on your income during any period when you have a partial financial hardship. Your monthly payment may be adjusted annually. The maximum repayment period under this plan may exceed 10 years (additional conditions apply).

Under this repayment option, the cap on monthly payments will fall to 10% (from 15%) of a borrower’s discretionary income, and depending on career choice, borrowers may qualify for loan forgiveness after fulfilling a specific number of years in repayment.

For more detailed information, visit the U.S. Department of Education at www.ed.gov or contact the Financial Aid Office at your school.

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What will AES/PHEAA’s role be now that all loans are made directly with the federal government?

AES/PHEAA will continue servicing existing FFELP and alternative (private) loans through their repayment period. AES/PHEAA has been selected as one of four servicers to manage the rapidly growing federal loan portfolio under the Federal Direct Loan Program (FDLP). AES/PHEAA will also continue to administer the Pennsylvania State Grant Program and other state-funded financial aid programs. AES/PHEAA will continue to provide financial aid, college-planning, and early awareness resources for Pennsylvania students and families.

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If I have questions about applying for a loan after July 1, 2010, whom should I contact?

You should contact the Financial Aid Office at the school you plan to attend or are attending.

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