The Student Aid and Fiscal Responsibility Act terminates the Federal Family Education Loan program, which provides subsidies and guarantees to private lenders that make student loans. Instead, the federal government would issue student loans directly to borrowers. Ending the subsidization program would save the government $87 billion over ten years. The Act ensures that interest rates on student loans remain affordable. Additionally, the legislation increases the maximum Pell Grant, a need-based grant designed for lower-income students, from $5,350 in 2009 to $5,550 in 2010 and $6,900 in 2019.
The Student Aid and Fiscal Responsibility Act includes funds for programs to encourage completion of college and subsequent employment, particularly for students from underrepresented backgrounds; for Historically Black Colleges and other minority-serving institutions; for early-childhood education; and for school modernization and repair. The bill also provides funds for improving the community college system. The legislation simplifies the Free Application for Federal Student Aid (FAFSA), which determines eligibility for student aid.
The Middle-Class Position:
The Middle Class Supports. Although a college education is increasingly a prerequisite for a middle-class standard of living, current and aspiring middle-class students and their families are struggling more than ever to afford college. A massive $87 billion subsidy to private companies that make student loans did little to promote affordability. It makes sense for the federal government to eliminate this waste by expanding its Direct Loan program, which is already serving as an effective lender for an increasing number of students as the credit crisis continues to threaten the market for private student loans.
Now the money can be redirected to genuinely help Americans afford college. Approximately $40 billion would increase the maximum Pell Grant, the most widely used college assistance program that helps lower-income students attend college. In recent years, the program has failed to keep pace with the rising cost of college: thirty years ago the maximum Pell Grant covered 77 percent of the cost of attending the average four-year public school, but today it covers only 35 percent. Increasing the maximum award would restore some of this lost purchasing power, providing more students from lower-income families with an opportunity to attend college. The bill’s provision for automatic Pell Grant increases helps ensure that the Pell Grant permanently maintains its value. Caps on interest rates and a reworked fixed interest-rate program will not only make college more affordable for all students, but will make obtaining and keeping a middle-class standard of living easier by reducing the growth of student loan debt, which now averages almost $23,000 for bachelor’s degree recipients, and reducing student loan defaults. An increased debt load can make it difficult for young graduates to make ends meet, much less begin saving or pursue careers in teaching and public service.
Funds for a variety of initiatives to increase access to early-childhood education and graduation rates, to modernize schools, and to improve community colleges will expand the opportunity for students to succeed at all levels of education.
From the Experts:
“This legislation, as well as announcements from the Obama Administration, demonstrates that lawmakers recognize that schools serving predominantly high numbers of low-income students need additional support. We’re very pleased that this bill would introduce unprecedented financial investment in these types of institutions, which ultimately means more support for the students who are least likely to obtain a postsecondary degree. H.R. 3221 represents a large step forward in our efforts to bridge the widening college access gap in our country.” –Joan H. Crissman, Interim President and CEO, National Association of Student Financial Aid Administrators (July 20, 2009)
“The Student Aid and Fiscal Responsibility Act (H.R.3221) provides an unprecedented opportunity to invest in our economic future from the very beginning. This bill, which ultimately aims to make college accessible to more students, includes an Early Learning Challenge Fund to help increase the number of low-income children in high-quality early learning centers…As we prepare for an unprecedented shortage of highly-skilled workers by the year 2025, we must start making the long-term investments that will help address this looming crisis. The L.A. Area Chamber supports the Student Aid and Fiscal Responsibility Act (H.R.3221) and urges Congress to make the early investments that are needed to create a strong and competitive economy in the future.” –Los Angeles Area Chamber of Commerce (September 8, 2009)
Beyond this Bill:
The Student Aid and Fiscal Responsibility Act represents an important shift away from a “Heads I Win, Tails You Lose” quagmire. For years, the federal government has allowed private lenders to reap government subsidies while assuming little risk when their loans went bad. The Act changes this by making the government the direct lender for all federally backed student loans. Realigning risk and reward is critical for all sectors of lending, from student loans to the broader financial system.
Further, Congressional Budget Office estimates expose the straw-man arguments of the private lending industry that argued for continued involvement in loan origination. The nonpartisan CBO found that allowing continued private lender participation in origination would cost the federal government an additional $13 billion with no apparent benefit to students.
By cutting unnecessary middlemen out of student lending, the Student Aid and Fiscal Responsibility Act is able to make important investments in education even as the federal government confronts large budget deficits.
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