On Tuesday, President Barack Obama transformed the way the government helps students pay for college education by signing into law the final changes to the reconciliation bill containing the student loan and the health care reforms.
The two bills were packaged together so both measures could use budget reconciliation, which requires a simple 51-vote majority to pass and also prevents a filibuster. Last year, the House of Representatives’ budget committee gave instructions to use reconciliation on the student loan bill, but since the process may only be used on one bill per year, the two pieces of legislation were packaged together.
The Student Aid and Fiscal Responsibility Act allows the federal government to loan directly to students instead of subsidizing private financial institutions that serve as middlemen. In total, the switch saves $61 billion over the next 10 years. From these savings, $10 billion will be invested to reduce the deficit, while the remainder funds higher education, according to the Congressional Budget Office.
“(The law) makes the single largest investment in higher education in history while also reducing the deficit,” said Rep. Henry Waxman of California’s 30th district, which includes UCLA, in an e-mailed statement.
But Republican opposition decries the student loan overhaul as another example of government interference in the private sector.
“(The law replaces) a popular student loan model with yet another one-size-fits-all government bureaucracy,” said Rep. John Kline, R-Minn., the senior Republican on the House Committee on Education and Labor, in a statement on his Web site.
“Majority leadership is siphoning billions from student lending to help pay for their government takeover of health care, ignoring its consequences for students, schools and the American economy.”
UCLA has already been in the process of switching to direct lending and will be finished in May in time for the 2010-2011 academic year, according to Ronald Johnson, UCLA director of financial aid. In the last three or four years, the university began noticing red flags as the uncertainty and instability of the economic recession hit lending institutions, Johnson said.
“Many of the lenders did not have the capital in order to fund these loans, so we started seeing some lenders leaving the program, and that concerned us,” Johnson said. “We decided a year ago that we were going to convert to the direct lending program because we felt that that was a security that we needed for our student community.”
As a result of the economic downturn, unprecedented numbers of students are applying for Pell Grants, which increases the cost of the program, according to Waxman. The new law covers $13.5 billion of an anticipated $19 billion budget shortfall. California’s 30th district will receive $42 million, which will help to increase the maximum annual Pell Grant to $5,550.
If the bill had not passed, the grant awards could have been cut significantly, said Nancy Coolidge, coordinator of student financial support in the University of California Office of the President.
Starting in 2013, Pell Grants will be tied to the Consumer Price Index, which estimates the average price of goods and services, ensuring that the award keeps pace with the rest of the economy, according to a statement from the House Committee on Education and Labor.
Students graduating from college this year can also benefit immediately from the law, Coolidge said. The new income-based repayment program caps monthly loan repayments at 10 percent of the borrower’s net income, down from 15 percent. For borrowers who demonstrate “partial financial hardship” and work a nonprofit job, the rest of their balance will be forgiven after 10 years of repayments, Coolidge added.
“In light of the 32 percent fee increase, we anticipate that we will continue to try to make a UC and a UCLA education affordable for students,” Johnson said.
“The only remaining thing that we would want Congress to look at is providing funding for the college work study program because we see that a lot of students want to participate in the program,” he added.