Student aid act passes House, sent to Senate

WASHINGTON – With the U.S. House passing the Student Aid and Fiscal Responsibility Act Thursday, congressional supporters and the Obama administration praised what they called a major overhaul of and large investment in higher education.

The bill includes a major shift in federal loan distribution to students, increased Pell Grant funding and a simplified FAFSA form, among other changes.

Put together, the legislation promises to have a far-reaching effect on campuses across the country if approved by the U.S. Senate and signed by President Barack Obama.

But amid the congressional debate about some of the finer policy details within the proposal, the actual effect on students coast to coast was sometimes lost.

Loan distribution

Perhaps the most important and contentious aspect of the bill – the actual effect of shifting all federal student loans from the Federal Family Education Loan Program to the Direct Loan Program – is up for interpretation.

A central tenet of the measure, this provision would end subsidies to banks that currently broker federal student loans and instead funnel those dollars to schools, leaving the banks to service the loans.

Expected to save nearly $90 billion, according to the nonpartisan Congressional Budget Office, the shift is the source of funds for much of the reinvestment in other programs included in the bill.

But detractors call it a government takeover of the student lending industry and say it could lead to fewer choices and worse customer service. However, federal student loans were always a public-private partnership and will continue to be, just in a different way.

Supporters say the move also eliminates private lenders’ ability to loan too much money to students and engage in predatory lending schemes.

Eileen O’Leary, assistant vice president of student financial aid services at Stonehill College in  Massachusetts, said there are other benefits to the switch to direct lending including removing the temptation for conflicts of interests between school loan officers and lenders that were the source of controversy a few years ago.

The Obama administration and supporters also say the move will remove market pressure from the availability of loans and interest rates. The House bill caps interest rates on direct loans at 6.8 percent.

Still, Todd Jones, president of the Association of Independent Colleges and Universities of Ohio and a former Department of Education official in the Bush Administration, considered the bill a dramatic shift from the current system and said competition could suffer if it’s enacted.

“This is a very radical change in the relationship between the federal government and colleges that have existed for about 40 years,” he said.
 
Increased Pell Grants

Nearly half of the savings from the shift to direct lending will be reinvested in federal Pell Grants.

The additional funds will increase the maximum annual scholarship to $5,500 in 2010 and $6,900 by 2019 and will increase with inflation, plus 1 percent, starting in 2011.

The legislation also establishes a $150,000 asset cap for Pell Grant eligibility, eliminating the asset analysis from consideration for those who are under the cap, a move that promises to simplify the FAFSA application proves.

The Obama administration, congressional supporters and other proponents of the legislation celebrated the increase in Pell Grants.

Melody Barnes, the president’s domestic policy adviser and director of the Domestic Policy Council, called the Pell Grant increase “an enormous victory” at a White House briefing Thursday, and special assistant to the president for education Roberto Rodriguez said the administration was “very excited” about the provision.

Simplified FAFSA form

The bill would also simplify the FAFSA application form, a 100-plus-question document that many have called a barrier that prevents some students from seeking aid for which they would otherwise qualify.

The main changes come in the form of changes to the need analysis portion of the application, which will take effect after June 2011.

The Pell Grant asset cap removes the need for an in-depth analysis of those families who don’t meet or exceed the cap, removing a lengthy procedure from the application process.

Further, it also excludes child support, workman’s compensation, veteran’s benefits, living allowances, pension benefits, cash support or money paid on a student’s behalf and other untaxed income from the analysis, removing a number of areas of inquiry from the FAFSA form.

–UWIRE’s Shelby Holliday contributed to this report.