Student Aid Bill Passes Through House

While it is good that this is moving forward, the problem is the cost of education will probably out pace these grant increases

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OrlandoSentinel.com
Massive student-aid bill passes House
New law would overhaul financial-aid, and cut out private lenders
Luis Zaragoza

Sentinel Staff Writer

2:45 PM EDT, September 17, 2009

More free money for college students from lower-income families and an overhaul of certain student loans are key aspects of legislation passed by the House today.

The legislation moves on to the Senate, which could take it up by the end of the month.The Student Aid and Fiscal Responsibility Act, HR 3221, is being touted as the single largest government investment in helping make higher education affordable, although the bill does nothing to slow rising tuition and other college costs.

The bill covers more ground than its title suggests. For instance, the bill would set aside billions so community colleges could expand their offerings and modernize their aging buildings. A separate pot of money would be set aside for early education programs to do the same.

The bill also sets aside money to benefit veterans and colleges and universities that focus on serving minorities. There's also a provision for simplification of the daunting federal financial aid application form that some say discourages families from applying for federal student aid.

The legislation would pump billions more into the popular Pell Grant program. If the bill becomes law, which is expected, the maximum Pell Grant in 2010-2011 would be $5,550, up from $5,350 this year. The bill also links a portion of the Pell Grant to the Consumer Price Index plus 1 percent starting in 2011-2012, which bill supporters say would help students keep up with increasing costs.

But the most controversial aspect of the bill is elimination of the Federal Family Education Loan Program, which worked through private lenders. New federally backed loans would come through the government's direct loan program.

Bill proponents say billions now paid to banks to administer student loans would instead go toward financial aid and reducing the federal deficit. The savings could range from $47 billion to $87 billion over the next several years, according to the Congressional Budget Office.

During House debate on Wednesday, the bill was attacked by congressmen who decried the likely loss of thousands of banking jobs, by some estimates upward of 30,000. They also said the proposal would force students to use the "public option" for student loans instead of having a variety of options to choose from.

Many of the bill's provisions stem from a proposal President Barack Obama offered months ago. He has declared the need for the U.S. to produce more college graduates. The White House has given the bill enthusiastic support.

As consumers, college students probably wouldn't notice much difference in their loans, which they would get through their schools. Broadly speaking, the bill doesn't do much to make loans cheaper or help pay them off.

It does keep interest rates for need-based federal loans from jumping from 3.4 percent currently to 6.8 percent as scheduled in 2012. Rates for most other loans would remain at 6.8 percent.

Still, the bill's changes to federal college aid programs would be the most sweeping since their creation in the 1960s and would fulfill an Obama campaign promise.

The measure would end the subsidized loan program under which private lenders made $56 billion in government-backed loans to more than 6 million students last year, compared with $14 billion in direct loans from the government.

Employees of Sallie Mae, the biggest student lender, have been trying to involve local leaders in the issue and recently held a series of town hall meetings and petition drives in Pennsylvania, Florida, Delaware, New York and Indiana.

The Reston, Va.-based lender has about 8,500 employees in the program and probably would lay off about 30 percent of those workers. It still will have contracts to service federal loans.

Democratic Rep. David Wu of Oregon said lenders still could make all the loans they want. "What will not happen anymore is making those student loans with taxpayer subsidies," he said.

Under the measure, Pell Grants would rise slightly more than inflation over the next decade, increasing on average by about 2.6 percent yearly, according to the bill's sponsors.

However, the grants would still depend on annual spending bills and could rise less than promised, as has happened in the past.

Obama originally proposed to take Pell Grants out of lawmakers' hands entirely, making the program an entitlement like Social Security and Medicare, which would have cost an estimated $117 billion -- more than lawmakers have to spend.

Associated Press contributed to this report. Luis Zaragoza can be reached at lzaragoza@orlandosentinel.com or 407-420-5718.