The Student Aid and Fiscal Responsibility Act, which was included in the health care reconciliation bill that was enacted last month, directly impacts higher education financing programs guaranteed by the federal government. This legislation eliminates the Federal Family Education Program and replaces it with the Direct Loan Program effective July 1, 2010. It also increases the maximum Pell Grant, starting in 2013 to 2017, at the same rate as the consumer price index.

While this legislation does eliminate private lenders from participation in federally guaranteed loan programs, it does not impact the private student lending programs that many banks, and most recently credit unions, provide in an effort to bridge the funding gap that many families face once all of their federal aid and grants are exhausted.

For many credit unions that have not offered a private student loan program, this new legislation could be very positive news. The majority of private student loans have been underwritten by large banks and Sallie Mae. Since many of these institutions were also FFELP lenders, they enjoyed a government subsidy since they used some of the same sales, service and technology infrastructure to support both their federal and private student lending programs. The elimination of FFELP evens the playing field for credit unions that are interested in entering the private student lending market.