Health Care and Education Reconciliation Act (HCERA) of 2010
What is HCERA?
It is a bill passed to overhaul federal student loan programs. Essentially the goal of the HCERA is to offer more money ($36 billion) for the Pell Grants as well as cutting out the middle man (private lenders) and essentially being the only game in town for access to federal loans. This will allow US to control the market and save the government and you a lot of money. Bottom line is all new federal student loans must be made through the Direct Loan program as opposed to private lenders.
2 primary effects of HCERA:
1. Higher approval rates
Because the government is in charge of approving your loan they have much higher approval rates. This is mainly because now your credit score and supporting collateral is essentially irrelevant. They have aggressive tactics to make sure you pay and ultimately if you don’t pay the taxpayers will.
2. Lower costs to you
Because the federal government can borrow at such low interest rates they can pass the savings on to you.
The US government makes more money with HCERA?
There are 3 ways the government makes more money using HCERA:
1. The federal government can borrow money at the federal funds rate which is currently very close to 0% which is a lot better than FFELP can do.
2. They cut out the middleman so they can make more on the spread of the loans
3. Economy of scale suggests that they will streamline processes
When do the effects of HCERA take place?
Some provisions are effective as early as July 1st, 2010, with the main changes taking place after July 1, 2014.
What is changing for Pell Grants under HCERA?
It is being raised to $5,500. The expected family contribution (EFC) eligibility cutoff for 2010-2011 will be $5,273, up from $4,617. Borrowers with an EFC of less than $5,273 qualify for a Pell Grant. This is intended to increase the amount of Pell grants by about 240,000.
Does HCERA change the income-based repayment plan?
Yes, big time.
There are 2 major changes with the Income based repayment plan under HCERA.
1. Your payment will only be based on 10% of your discretionary income vs. the old rule of 15%.
2. Forgiveness of the loan balance goes from 25 years to 20 years. After you’ve paid for 20 years the remaining balance is forgiven.
When do the changes for Income based repayment plans take effect under HCERA?
They are effective for new borrowers of new loans made on or after July 1, 2014.
Will current borrowers benefit from HCERA changes?
No, unfortunately not. The modifications to the programs are not retroactive.
Can I consolidate my loans with HCERA?
Yes. As long as you have one of the following loans and they have not entered repayment. This includes loans that are in a grace period.
1. Federal Direct Loan
2. FFLEP loan serviced by another lender
3. FFLEP loan held by Education Department
There are other considerations if you are interested in consolidating your loans. Always speak with your financial aid counselor to see if it really makes sense for you to consolidate.
For more information on HCERA click direct.ed.gov or call 800.848.0978.