Obama plans to augment the funding available to students in federal grants and revamp federal student loan programs.
Currently around 75% of federally funded student loans are distributed by private banks like Sallie Mae, Citibank, Well Fargo, etc. The federal government pays subsidies to these banks for giving out student loans. The government then sets a rate of interest for these loans and guarantees to pay the bank in case of any defaults by students.
This costs the US government around $ 4 billion per year. The
Obama government has come up with the plan to shift federal
student loans to the direct loan program. The
money thus saved will be used to pay for expanded aid in the form
of student grants. The plan would also increase the funding for the
Pell Grant and expand the Perkins Loan Program. The Federal Pell
Grant Program provides need-based grants to low-income
undergraduate and certain post-baccalaureate students to promote
access to post-secondary education. The Expected Family
Contribution (EFC) number which is
calculated on the basis of information supplied while applying for
the grant, to determine if the student is eligible for the grant.
The changes to the Pell Grant program would increase its maximum
award from $4,731 for the 2008-09 school year to $5,550 for the
2010-11 school year. The Obama budget turns the grant into a
guarantee, ensuring that the flow of Pell Grant aid is stable by
increasing the grant at inflation plus one percent each year from
2011 on. Students would no longer need to wonder how next year's
tuition and other educational costs will be paid for.
Obama also seeks to make campus-based loans through a Perkins Loan Program more widely available at a lower interest rate for college attendees. This will result in more students receiving grants than at the present. Also, current and future college students may be able to save money while preparing for their futures. Even students who don't need Financial Aid could see gains on their taxes. An expanded education tax credit, which includes textbooks as an education cost, will benefit students. In an effort to allow all individuals,irrespective of income, to gain access to higher education opportunities, Obama's proposal to increase student loan and Pell Grant financial aid support should stimulate an almost immediate benefit.
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