For hundreds of thousands of college students across the nation, it could soon get easier to pay for school.
The House of Representatives passed the Student Aid and Fiscal Responsibility Act on Thursday, changing the way federal financial aid is delivered to students, decreasing loan interest rates and increasing the amount available for federal grants — while saving an estimated $87 billion throughout a 10-year period.
U.S. Rep. Rush Holt, D-12, a member of the House Committee on Education and Labor, helped pass the legislation and said the act would not cost taxpayers more.
“In fact, by improving the way our student loan programs operate, we can expect a $10 billion savings for taxpayers,” Holt said. “Millions of students and parents support the goals of this bill. Let us answer their pleas for help to make college more affordable. No one can argue reasonably that now is not the time to improve accessibility and affordability of college.”
The bill is a big step for students who receive aid, said Francine Newsome Pfeiffer, assistant vice president for the University’s Office of Federal Relations in Washington. The act would change universities’ bank-based loaning systems to direct lending programs.
“The major underpinning of the plan is to change the way financial aid is delivered at financial institutions,” she said. “It moves away from the bank-based lending system that many schools participate in.”
With direct lending, universities apply directly to the federal treasury for loan money. With bank-based loans, students apply to banks themselves, said University Vice President of Enrollment Management Courtney McAnuff.
“Under this program the bank is eliminated, so the university is now the middle agent and applies to the federal government for loans and it disperses the money to those students,” McAnuff said.
He said the University already uses direct lending.
Direct lending saves taxpayer money, as they had supported the subsidies the banks needed to provide the loans, Pfeiffer said. With direct lending, this subsidy is turned over to the federal treasury and funneled to student aid.
“This was really a historical thing because what they’re doing is diverting $40 billion away from banks and for students in the form of Pell Grant aid,” said Katie Hubschmitt, co-chair of University’s chapter of New Jersey Public Interest Research Group Student Chapters, who advocated for the bill’s passage with tens of thousands of students across the nation.
McAnuff said the increase in Pell Grant aid throughout the next 10 years would affect 28 percent of the University’s undergraduates — about 10,000 students — who receive the grants.
“They’ll be gradually increased starting next year by about $100 or so,” McAnuff said.
In the next 10 years, New Jersey would receive $796.5 million for Pell Grants, Holt said.
The Pell Grant increases would also be more stable, as the grant would be indexed to the current consumer price index plus 1 percent, Pfieffer said.
In past years, Congress mandated flat levels for the grant annually, she said.
“It would basically ensure a stable cost of living increase to the Pell Grant award,” Pfieffer said.
The act would also expand funds for Perkins Loans, federal funds available on the campus, McAnuff said.
He said under past presidents, there had not been new capital available for the loan. With more funds, this bill would allow more flexibility for students in the program.
Pfeiffer said another advantage is the simplification of the Free Application For Student Aid form.
“I think students will appreciate a more simple form,” she said.
The bill also keeps loan interest rates low and has provisions to help students enter and complete their education, she said.
Despite the financial advantages for students who need aid, there is still debate over the act, which has yet to pass the Senate.
McAnuff said banks oppose the act, as they would no longer be a part of the student loan process.
The banks claim with bank-based loans there is more competition and incentives to provide good services, he said. With direct lending, the federal government has no incentive to provide good service.
“I don’t think that’s true, but that’s their contention … I think with [Obama’s] administration, the commitment to students is so much greater that the agencies will respond and deliver in a timely fashion,” McAnuff said.
Some schools might have problems with changing the way they deliver aid, Pfieffer said.
“I think at some colleges that are not direct lending schools today that this is a major change to the schools … that will take some time and money,” she said.
The advantages for students presented in the act make it easier for students to go to school, corresponding to the Obama administration’s education goals, Pfieffer said.
“He has an aggressive plan that also increases the number of college graduates by 2020,” she said.
Pfieffer said the Department of Education plans to see this act voted in the Senate before the end of this year.
House passes Act to frame affordable college loans
Published: Monday, September 21, 2009
Updated: Monday, September 21, 2009
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