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Student Loan Overhaul Advances

March 22, 2010

WASHINGTON -- Unless you knew better, you would have been hard-pressed to know that Congress was considering one of the most significant pieces of higher education legislation ever on Sunday.

The student aid portion of the budget reconciliation legislation that a deeply divided House of Representatives passed late Sunday was completely overshadowed -- in the depressingly partisan debate on the House floor, the reams of national news coverage, and the public's consciousness -- by the bill's health care provisions.

But when all the shouting and the horse trading and, finally, the voting was done, Congress's Democratic majority had indeed given approval to what supporters, without engaging in hyperbole, characterized as a dramatic reshaping of the federal student loan programs. The legislation (H.R. 4872) would shift all lending from the bank-based Federal Family Education Loan Program to the Direct Loan Program and use $61 billion in savings over 10 years to shore up the Pell Grant Program and for a handful of other education priorities.

Whittled down in recent weeks by budget realities, the student aid legislation is a pale imitation of the version that the Obama administration envisioned early on, and that the House passed last September.

Gone -- due to diminished projections of the savings generated by the loan overhaul and the need to balance out health care spending in the overall bill -- are billions of dollars to reduce the interest rate on students' loan payments, remake the Perkins Loan Program, and fund President Obama's American Graduation Initiative, aimed at helping community colleges graduate 5 million more students by 2020.

Also sacrificed to practical realities are most of the Obama administration's efforts to prod recipients of the new federal money to change their practices, through accountability provisions that would have been part of the American Graduation Initiative and the proposed $2.5 billion College Access and Completion Fund, which has been jettisoned in favor of a smaller $750 million expansion of the existing College Access Challenge Grant Program.

Thanks to a last-minute scramble to find some new money to help community colleges meet exploding demand for enrollment amid state and local budget cuts, the final version of the legislation retains $2 billion to fund a Department of Labor career training program that was created in last year's economic stimulus bill but never funded. It would direct $2.55 billion over 10 years to historically black, Hispanic-serving, and tribal colleges. And it would provide about $1.5 billion to expand income-based repayment options for student loan borrowers.

While there will surely be disappointment in various quarters about the final contours of the student aid legislation, college and student leaders focused Sunday on what they liked about the bill -- most notably that it would apparently ensure that the government will be able to meet the exploding demand for the Pell Grant Program without taking anything away from recipients now or in the near future.

"Without the funds made available by this legislation, 8 million low- and middle-income students who rely on Pell Grants could see their grants cut to maximum award levels last seen in the late 1980s. Others could see their grants disappear entirely," the American Council on Education and 29 other higher education groups wrote in a letter Saturday urging Congressional passage of the combined health care/student loan measure.

"In a student aid system that has been de-prioritizing federal grant programs, this bill will remove wasteful and unwarranted middleman subsidies that are currently going to big banks and lenders and direct that money to student grant aid," Rich Williams, higher education associate for the U.S. Public Interest Research Group, said in a prepared statement Sunday. "This investment will provide immediate relief for millions of students who might otherwise abandon their college aspirations or drop out of college altogether when forced to rely on loan debt to pay for it."

 

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