Q&A about student loan changes

WASHINGTON (AP) - Bigger grants for college students who need them. Relaxed payment terms for students with loans. More money for community colleges and historically black institutions.

The law that President Barack Obama signed Tuesday could mean big changes for hard-pressed students and colleges as the government becomes the primary issuer of student loans. But just whom will that affect and how?

Q: What does the overhaul of student lending do?

A: Basically, it cuts banks out of the government-backed student loan business. Money for the loans has come either directly from the government or through private financial institutions, which have collected billions of dollars in federal subsidies to protect against default.

Under the changes, banks will no longer act as middlemen, and all colleges and universities must switch to the direct lending program by July 1. Many already have made the switch in anticipation of the new law.

Q: How much money will the government save?

A: Taxpayers will save $68 billion over the next 11 years, according to the Congressional Budget Office.

Q: What exactly is happening to Pell Grants?

A: More than $40 billion will go toward the grants, which are targeted toward students from low- and moderate-income families. Between 2013 and 2017, the maximum award will increase to $5,975 from $5,550. The administration also expects more than 820,000 additional awards to be made by the 2020-2021 academic year because of the changes.

Q: How else will students benefit?

A: Students who have low incomes or meet certain other eligibility requirements and who take out loans after July 1, 2014, will see their payments limited to 10 percent of their discretionary income after graduation. Current law caps payments at 15 percent of income.

For students who make their loan payments on time, the government will forgive the balance after 20 years, instead of 25.

Q: What's in the new law for community colleges?

A: Community colleges, which enroll more than 6 million students and are growing fast, will receive $2 billion over the next four years for a competitive grant program to provide training and education programs. The grant program was created in the economic stimulus bill enacted last year, but never funded.