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House Passes Student Aid Bill

September 18, 2009

WASHINGTON -- The House of Representatives on Thursday approved sweeping legislation to overhaul the student loan programs and redirect tens of billions of dollars to student aid and other education programs, brushing aside Republican opposition and handing President Obama a significant legislative victory. The House's approval of the Student Aid and Fiscal Responsibility Act of 2009, which had been a foregone conclusion for months, shifts the action to the Senate, where the outcome is slightly less predictable.

The student aid bill, a top domestic priority for the Obama administration, would cease all lending from the bank-based Family Federal Education Loan Program and use the savings the government derives from lending more cheaply for a wide array of purposes, only some of which, to the dismay of some college officials, are in higher education. Among other things, the legislation would:

  • Provide $40 billion over 10 years to increase the maximum Pell Grant to $5,550 and ensure that it would increase annually by the rise in the Consumer Price Index plus 1 percent.
  • Greatly expand and alter the criteria for the Perkins Loan Program.
  • Pour $10 billion into community colleges in support of President Obama's American Graduation Initiative, designed to produce 5 million more two-year college graduates by 2020.
  • Spend $8 billion over 10 years to strengthen early childhood education.
  • Create a College Access and Completion Fund that would give grants to states and institutions with innovative approaches to increasing college going and graduation.
  • Provide $4.1 billion to modernize and repair school and college facilities, including those damaged by Hurricanes Katrina and Rita.
  • Make the interest rates on federal student loans variable beginning in 2012, when they are set to rise back to 6.8 percent.
  • Simplify the federal financial aid form.

“This legislation provides students and families with the single largest investment in federal student aid ever and makes landmark investments to improve education for students of all ages -- and all without costing taxpayers a dime,” Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee and author of the bill, said in a news release about the bill's passage. “Today the House made a clear choice to stop funneling vital taxpayer dollars through board rooms and start sending them directly to dorm rooms. This vote was a historic triumph for America’s students, families and taxpayers – and will ensure that their interests never again take a backseat to lenders and big banks.”

President Obama cheered the bill's passage. "Today, the House delivered a historic set of reforms to the financial aid system that will offer relief to students and families," he said in a statement issued by the White House. "This bill will end the billions upon billions of dollars in unwarranted subsidies that we hand out to banks and financial institutions, and will use that money to guarantee access to low-cost loans, and strengthen Pell Grants and Perkins Loans that make college more affordable. This bill also follows through on our plan to shore up our community college system, simplifies the complicated financial aid forms to make it easier for students to apply for and get the help they need, and will strengthen standards and improve outcomes in early learning programs."

Lenders opposed to the White House's plan to end lending through the FFEL program (which they say will eliminate jobs and competition) had long since abandoned any hope of stopping the House from ramming the Democratic-sponsored bill through, and while Democrats called support for the bill "bipartisan," it garnered just five Republican votes in the 253 to 171 tally in favor.

Republican leaders derided the legislation as a federal takeover of the student loan industry (at a time, many of them argued, when the Obama administration is calling for competition and choice in health care) and complained that despite the legislation's title, little about the bill reflected fiscal responsibility. “Today’s vote was about expanding the size and scope of the federal government through tens of billions of dollars in new entitlement spending and the elimination of choice, competition, and the innovation of the private sector," said Rep. John Kline (R-Minn.), senior Republican on the Education and Labor Committee. "This job killing legislation is rife with hidden costs that will be passed on to future generations.”

Before passing the legislation, the House rejected a series of Republican amendments, including one that would have continued to let lenders make student loans while a commission studied viable ways of continuing a role for the private sector in student lending.

With House passage, attention turns to the typically more bipartisan Senate, where supporters of the guaranteed loan program believe they have a better shot of some compromise that gives them a meaningful role in student lending going forward (they are hopeful that Sen. Ben Nelson, the Democrat from Nebraska, which is home to the major lender Nelnet, will fight for them to save jobs in his state).

Lenders won't be the only ones looking for help from the Senate; supporters of private colleges, many of which are unhappy about some of the administration's proposals (including the dependence on states to distribute much of the college access and community college money, and the proposed changes in the Perkins Loan Program) are also hoping they'll get an airing in Congress's senior chamber.

 

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