Rising college costs prompt student loan reform
States struggle to contain fees at public universities while the federal government rolls out affordability measures to help counter the rising costs of higher education.
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Tuition and fees for this year are up about 4.3 percent at 350 private, nonprofit schools surveyed by the National Association of Independent Colleges and Universities in Washington. That's the lowest increase since the 1972-73 academic year, although it's still higher than overall inflation, the group notes.Skip to next paragraph
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Despite drops in endowments and charitable giving, many private schools have anticipated rising demand for financial assistance from families. The schools in the survey increased their aid budgets by an average of 9 percent for this year.
Some have gone even further to compete for enrollment, freezing tuition or offering to match the price of nearby public institutions.
What is the federal government doing to increase affordability?
For one, it's giving a major boost to Pell Grants for low-income students. The stimulus package raised the maximum grant amount for this year to $5,350, from $4,731 – the largest increase since the program started in the early 1970s. Next July 1, it will rise again, to $5,550.
The Student Aid and Fiscal Responsibility Act would continue to raise the maximum Pell Grant annually for the next decade to match cost-of-living increases, based on the Consumer Price Index plus 1 percent. The bill has recently been approved by the House and is now awaiting a vote in the Senate.
"A $40 billion investment in the Pell Grant scholarship [would be] historic," says Rachel Racusen, spokeswoman for the House Education and Labor Committee. "Over the past 30 years, the purchasing power of the Pell Grant has significantly declined, so ... these investments are going to ... make sure that Pell Grants can once again cover an effective share of a student's tuition cost." (See chart at near left, on facing page.)
One controversial element in the bill is a restructuring of federal loans. It would eliminate a part of the system that has paid subsidies to private lenders to give them incentive to make college loans. All new loans would originate through the government's Direct Loan Program.
The Obama administration's reasoning on this: Since the government already guarantees student loans, it should reap the interest payments rather than private lenders that haven't taken on the risk. But the private sector would still be contracted to service and collect the loans, so borrowers should notice little change.
The Congressional Budget Office estimates this shift would save $87 billion over 10 years, which could pay for the Pell Grant increase and other education initiatives. Some lawmakers oppose this idea, saying they doubt it would really save that much and that it may lead to job losses in the lending community. But the change appears to have enough support to be approved in Congress this fall.
Other provisions in the bill include funding for community colleges and incentives to improve college graduation rates. The stimulus package, meanwhile, has expanded college tax credits for low- and middle-income families.