As part of the historic vote anticipated this weekend, Congress won’t just be taking up healthcare reform. Another bill, which aims to help college students who receive financial aid, is also in the package.
One provision in the Student Aid and Fiscal Responsibility Act would eliminate subsidies to private lenders for offering federally guaranteed student loans. This would save the government $61 billion over 10 years, according to the Congressional Budget Office. Those savings would fund the other provisions of the bill.
Here’s a rundown of key components in the legislation:
• Bigger grants. Maximum federal Pell Grants for low- and middle-income students would increase to $5,550 in 2010 and $5,975 in 2017. Also, the grants would be tied to the cost of living from 2013 to 2017 – rising at the same rate as the Consumer Price Index.
The bill would invest $36 billion in Pell Grants over the next 10 years.
The cost of college tends to go up faster than general inflation, but this provision would “help limit the erosion [of Pell Grants] in value ... and reduce the amount people will have to borrow,” says Lauren Asher, president of the Institute for College Access and Success in Berkeley, Calif.
• Improved repayment options. Borrowers already can limit their monthly federal loan payments at 15 percent of their discretionary income. As of 2014, new borrowers would be able to cap their repayment at 10 percent of income.
• A streamlined federal-loan system. Starting July 1, all federal loans would originate through the Direct Loan Program, in which many colleges already participate. The Federal Family Education Loan Program (FFELP), in which private lenders currently get subsidies to make federally guaranteed student loans, would be eliminated.
This wouldn’t change much for borrowers, who would still get federal loans at the same rates by filling out financial-aid forms and working with their college’s aid office.
• Competitive loan servicing. When it comes time to repay loans, college students and graduates might experience better customer service. The Department of Education would distribute that work to contractors based on cost-effectiveness and quality customer service.
• Support to stay in school and manage debt. The bill directs $750 million to helping low-income students with financial literacy, debt management, and college access and completion. This is intended in part to replace services that were provided through FFELP.
Other provisions of the bill include more than $4 billion for community colleges and historically black and other minority-serving institutions.
With the savings the government is expected to realize, the legislation would also direct at least $10 billion to federal deficit reduction.
Some private lenders and Republican lawmakers have lobbied hard against the bill in recent months.
But in a conference call with reporters Thursday, Secretary of Education Arne Duncan praised the bill as a “historic opportunity ... to make college dramatically more affordable.”