House nears OK on dramatic expansion of college student aid

McClatchy NewspapersSeptember 15, 2009 

WASHINGTON — The House of Representatives is expected this week to back overhauling - and simplifying - how college students receive financial aid.

The rules for awarding and repaying loans would remain unchanged, but the government would make all loans itself, ending the practice of subsidizing loans made by private lenders.

The Obama administration, which has made revamping the student loan system a major domestic priority, has hailed the bill as historic.

"This is a big, big deal," Education Secretary Arne Duncan said Tuesday at a news conference. He called the measure "the largest investment in higher education since the GI Bill" first passed in 1944 to help World War II veterans.

House Education and Labor Committee Chairman George Miller, D-Calif., vowed that the legislation would help students at "no cost to taxpayers."

That depends on how one interprets budget data, however. The nonpartisan Congressional Budget Office found that the loan program changes should save the government $86.8 billion over the next 10 years.

It also noted in its official July report on the bill, however, that it would include spending all but $7.8 billion of that on aid to students and higher education. In an update last week, the CBO said that economic changes could boost spending overall by $10.5 billion, meaning that the bill could add to the deficit.

"The truth is, no one really knows how much this plan will cost," said Rep. John Kline, R-Minn., the senior Education and Labor Committee Republican.

Independent analysts agreed.

Changes in the loan program will "save a big chunk of money," said Marc Goldwein, the policy director for the Committee for a Responsible Federal Budget, a watchdog group. "Will it be the right amount to offset the new spending? The obvious answer is we don't know."

Goldwein warned that the new system's fiscal outlook would be "particularly uncertain" because it would depend on economy-related factors such as default rates, need-based aid and other factors.

The bill would scrap much of the current student loan system, which critics say is too costly and too complicated.

Currently, the federal government provides loans through two different programs. It lends directly to students, and it administers the guaranteed loan program, in which students get funds from private lenders, with most of the loan guaranteed by the government against default.

Under one such loan, the government pays the interest while the student is in school. The student then begins repaying six months after graduation. If he or she defaults, the government makes the payment.

Until 2006, rates were variable but capped at 8.25 percent; after that they were fixed at 6.8 percent, with bipartisan support. Some rates then were lowered, but they're scheduled to go back up to 6.8 percent in 2012.

The bill would end the guaranteed loan program after next summer; then the government would make all loans directly.

That frightens some members of Congress.

"The U.S. Department of Education would become a behemoth federal bank," Kline said. "Democrats have had their sights set on a government takeover of student lending for more than a decade, and they're capitalizing on the market downturn to make it happen."

He sees parallels to the health care debate. Obama has urged creating a government-run health insurance program, or public option, to compete with the private sector.

"The legislation (on student aid) we're about to bring up ... eliminates the private option and leaves only the public option," Kline said. "It kind of makes you wonder, doesn't it, about the designs on the future of the public option in health care."

The new program would create big savings, the CBO figures. It would save money because of changes in subsidy rates, the CBO said. Some savings could be achieved with lower interest rates; the bill would set a new rate based on the price of 91-day Treasury bills plus 2.5 percentage points. The rate would be adjusted annually.

At the same time, though, the measure would expand the cost of the Pell Grant program, which helps lower-income students. Currently, the maximum annual award is $5,350. Under the bill, that would grow to $6,900 by 2019. The CBO estimated in July that the changes would cost the government at least $39.4 billion over that period.

Members of the National Association of Student Financial Aid Administrators are divided on the bill's merits. Justin Draeger, the organization's vice president of public policy, likes the Pell Grant provisions.

"Any investment we can make in Pell Grants is money well spent. There's been irrefutable evidence that providing low-income families with these dollars year after year increases access to education," he said.

Most activists and lawmakers agree on at least one point: The application process needs to be streamlined. The bill promises to "dramatically cut down the number of questions on the form," partly by allowing students and families to apply for aid using data from their tax returns.

The Senate Health, Education, Labor and Pensions Committee hasn't yet considered the legislation, but is expected to do so soon. The committee is considered sympathetic to changing the loan program, but its new chairman, Tom Harkin, D-Iowa, has said he wants to examine the spending proposals closely.

ON THE WEB

Justin Draeger's site

Congressional Budget Office analysis of student aid bill

CBO student aid update

National Association of Student Financial Aid Administrators on legislation

GI Bill history

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