Northwestern will revamp its student loan policies for the 2010-11 academic year in response to the economic downturn and pending changes to federal student loans.
The University plans to switch to direct lending, allowing students to borrow from the federal government as opposed to private lenders for Stafford, Parent PLUS or GradPLUS loans.
“The main draw of the (private) program was loan providers would compete by offering different benefits,” said Brian Drabik, associate director of financial aid . “With this economic crisis, lenders could no longer afford these benefits.”
The changes will affect a significant number of students; 46 percent of NU undergraduates borrow through the federal loan programs and graduate with an average loan debt of less than $16,000, Drabik said.
NU currently participates in the Federal Family Education Loan Program. The program is being challenged by legislation passed in the U.S. House of Representatives as part of President Barack Obama’s goal to eliminate bank-based lending for students.
According to NU’s financial aid Web site, the school will switch to the William D. Ford Federal Direct Loan Program “to eliminate any possible risks to our students and parents that might be associated with either federal regulatory changes or market fluctuations affecting the FFEL program.”
In the Direct Loan Program, interest on Stafford loans will remain the same, while the interest rate on PLUS loans will decrease to 7.9 from 8.5 percent.
The policy change allows students to access the Income Contingent Repayment program, which matches lenders with monthly payments based on salary, family size and total loan burden. If payments are too low to cover the accumulating interest, a borrower’s overall debt could potentially grow. The program prevents this by subsidizing interest payments.
In the program, borrowers will be relieved of unpaid loans after a maximum of 25 years of payments.
The Office of Undergraduate Financial Aid sent out an e-mail to students to notify them of the changes. The only action required of student borrowers is the signing of a Master Promissory Note with the Direct Loan Program.
Audrey Ross said she hasn’t really looked into the new loan program and relies on NU’s judgment.
“They never implied if it can be worse,” the McCormick freshman said. “They just said I had to go and sign another Master Promissory Note.”
McCormick sophomore Tom Pickerill said he doesn’t have an opinion regarding the policy change.
“I don’t think it will change too much,” he said. “To tell you the truth, I don’t know too much about it.”
Pickerill said NU hasn’t done that great of a job of informing students of the policy changes. He said he was directed to the financial aid Web site but didn’t get much out of it.
“I guess I’m not too worried right now, but maybe I should be,” he said.
As the loan system transitions, a number of students will graduate owing both the federal government and private lenders. The Direct Loan Program does offer student lenders the chance to consolidate their loans at graduation.
Even with a recovering economy, NU doesn’t anticipate switching back to the private industry, Drabik said.
“A lot of lenders are leaving the federal student lending business as it is,” he said. “It doesn’t look like that’s going to be a viable option.”
Other federal changes to improve student lending include a recent effort to simplify the Free Application for Federal Student Aid by eliminating questions and using friendlier navigation, according to the U.S. Department of Education blog.
Pickerill said a number of his friends didn’t apply to schools like NU based on the price tag and confusion over aid.
“Mainly the best thing about what they’re trying to do is make it more accessible to students who don’t know much about financial aid,” Pickerill said. “(My friends) could’ve done the same, but they had no idea how much help they can get.”[email protected]
