Student loans, Pell Grants revised
By Kyle A. Porter, November 2009
Editor-in-chief
Federal legislation may redefine the guaranteed student loan program and increase the funding for Pell Grants.
House Resolution 3221 passedon Sept. 17 and would make all federally guaranteed loans for higher education Direct Student Loans. The Student Aid and Fiscal Responsibility Act of 2009 eliminates private banks and lenders which currently participate in the program called Federal Family Education Loan.
The federal government already issues Direct Loans to students and their families for college expenses as well as backing or guaranteeing loans made by banks and some non-profit lending institutions. The Congressional Budget Office estimates a savings of $87 billion over the next 10 years if the federal government originates and collects on the loans, according to Adam Sarvana, communications director for Raul Grijalva (D), U.S. Congressman for District 7 in Arizona. Grijalva was a co-sponsor of the bill and is a member of the House Committee on Education and Labor.
The House bill invests the savings from the loan program in Pell Grant increases to keep pace with inflation and to help more students attend college.
Other major provisions of the bill provide grants to states, colleges and non-profits to help student persistence and completion, especially at the community college level, says Craig Smith, deputy director for higher education with American Federation of Teachers, which represents 170,000 college-level instructors nationally.
“College is very important for American students,” Craig says, “It is critical to make it more affordable.”
John Shadegg (R), U.S. Congressman for District 3 in Arizona, which encompasses PVCC, voted against the measure. His primary concern was a loss of choice for students and their parents when seeking loans to finance college.
“I would support any alternative that allowed a choice of private or government loans,” Shadegg says.
He questions the savings touted by the CBO and says the loan changes may cost $50 billion.
The choice between the private loan, FFEL program and the government’s Direct Loan program is determined by each college or university says Ken Clarke, interim director of student financial assistance at PVCC. Direct Loans are the funding option at PVCC along with one other MCCCD college; eight others use FFEL.
Nationwide, 75 percent of schools use the FFEL loan program and the remaining 25 percent of college and university financial aid departments are affiliated with federal Direct Loans, according to Kevin Bruns, executive director of America’s Student Loan Providers, a coalition of lenders, guaranty agencies and loan servicers. This coalition is lobbying Congress to endorse a compromise proposal that would maintain a role for private lenders and save jobs in this sector. This plan would generate most of the anticipated savings for taxpayers and for funding of Pell Grants and other higher-education programs.
“Since the House bill passed, many of the 4,500 schools in the FFEL loan programs have contacted their representatives in Congress with concerns about the costs of the transition that would be required by July 1, 2010,” Bruns says.
Approximately 35 percent of PVCC students obtain financial aid including Pell Grants, loans and scholarships, Clarke says. Nationally, 62 to 67 percent of students at universities use financial aid to help fund their education, he says.
Clarke, who has 22 years experience in college financial aid at state and private universities as well as a graduate school, believes that Pell Grants, named for Senator Claiborne Pell and also known as Basic Educational Opportunity Grants, have not kept pace with the cost of living since their inception with The Higher Education Act of 1965. In 1972, the maximum Pell Grant was $452. For the 2009-10 school year, the maximum is $5,350, but even this increase does not match the rate of tuition raises at state universities nationwide.
The new legislation sets a fixed rate of increase annually for Pell Grants to counter inflation, according to the White House Office of Budget and Management. Until now, Congress has set Pell Grant amounts each year with no guidelines.
The Senate Health, Education, Labor and Pensions Committee received the bill Sept. 22, and one hearing has been held. Student loan reform was introduced by President Obama as part of his administration’s Fiscal 2010 Budget.
The current Direct Loan program has been a part of budget reconciliation bills since 1992 in the administration of George H.W. Bush and was targeted to replace FFEL under Clinton, says the OMB. Congress reversed that mandate in 1994 and private lenders were free to use their resources to influence schools’ choice, evidenced in the nationwide student loan kickback scandals investigated and prosecuted in 2007 by then-New York Attorney General Andrew Cuomo. Congress responded with “sunshine” legislation to prevent conflicts of interest between lenders and college financial aid officers and to protect student borrowers.
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