Student loan overhaul to ease access, repayment

More needy college students will have access to bigger Pell Grants, and future borrowers of government loans will have an easier time repaying them, under a vast overhaul of higher education aid headed to President Barack Obama's desk.

The measure would force private commercial banks out of the federal student loan market, cutting off billions of dollars in profits for the institutions. Students will take out their loans through their college's financial aid office, instead of using a private bank.

The banks would no longer get fees for acting as middlemen in federal student loans. The government would use the savings to boost Pell Grants and make it easier for some workers to repay their student loans. In addition, some borrowers could see lower interest rates and higher approval rates on student loans.

Since the bank-based loan program began in 1965, commercial banks such as Sallie Mae and Nelnet have received guaranteed federal subsidies to loan money to students, with the government assuming nearly all the risk. Democrats have long denounced the program, saying it fattened the bottom line for banks at the expense of students and taxpayers.

The revamping of student loan programs was included in the final health care package passed by Congress on Thursday. The House approved the bill by a vote of 220-207, hours after the Senate passed it by a vote of 56-43. No Republicans in either chamber voted for the bill.

The legislation, an Obama domestic priority that was overshadowed by the health care issue, has widespread reach. About 8.5 million students are going to college with the help of Pell Grants.

Congressional allies of the student loan industry attacked the overhaul as an over-reaching government takeover that will kill banking jobs. The legislation substitutes an expanded direct-lending program by the government for the bank-based program, directing $36 billion over 10 years to Pell grants, for students from low-income families.

Colleges respond to Gov. Nixon's proposal to cut student aid

Speaking at the Springfield Business Development Corp. annual meeting, the governor outlined some budget cuts the state must make to begin to plug an estimated $500 million hole in next year’s budget.

Gov. Nixon may partially plug that gap by diverting financial assistance to students at private institutions – a move students and administrators at the state’s independent colleges and universities — including four Baptist institutions — have decided to fight.

Missouri is reportedly the first state to consider cutting off aid to private school students.

A public letter-writing campaign and telephone bank drew almost 600 students, several faculty and staff, and a few parents at Missouri Baptist University’s St. Louis campus March 22. The turnout also caught the attention of most of the area’s media, including the Associated Press.

In his Springfield speech, the state’s top politician pointed to “vital” services that cannot be cut, such as the Highway Patrol and public school teachers.

Cuts, then, must come from nonessential services, including funding that gives students more college choices, he said.

“We also need to make changes in another well-intentioned area: financial aid for higher education,” Nixon told the Springfield business community. “Currently, many of our state college scholarship programs — both for merit and for need — provide financial support to students whether they choose to attend public or private colleges. In some cases, students at private schools actually get larger scholarships than students at public institutions.

Will the student aid bill help with your college costs?

Here’s a rundown of key components in the legislation:

• Bigger grants. Maximum federal Pell Grants for low- and middle-income students would increase to $5,550 in 2010 and $5,975 in 2017. Also, the grants would be tied to the cost of living from 2013 to 2017 – rising at the same rate as the Consumer Price Index.

The bill would invest $36 billion in Pell Grants over the next 10 years.

The cost of college tends to go up faster than general inflation, but this provision would “help limit the erosion [of Pell Grants] in value ... and reduce the amount people will have to borrow,” says Lauren Asher, president of the Institute for College Access and Success in Berkeley, Calif.

• Improved repayment options. Borrowers already can limit their monthly federal loan payments at 15 percent of their discretionary income. As of 2014, new borrowers would be able to cap their repayment at 10 percent of income.

• A streamlined federal-loan system. Starting July 1, all federal loans would originate through the Direct Loan Program, in which many colleges already participate. The Federal Family Education Loan Program (FFELP), in which private lenders currently get subsidies to make federally guaranteed student loans, would be eliminated.

This wouldn’t change much for borrowers, who would still get federal loans at the same rates by filling out financial-aid forms and working with their college’s aid office.

• Competitive loan servicing. When it comes time to repay loans, college students and graduates might experience better customer service. The Department of Education would distribute that work to contractors based on cost-effectiveness and quality customer service.

• Support to stay in school and manage debt. The bill directs $750 million to helping low-income students with financial literacy, debt management, and college access and completion. This is intended in part to replace services that were provided through FFELP.

Other provisions of the bill include more than $4 billion for community colleges and historically black and other minority-serving institutions.

With the savings the government is expected to realize, the legislation would also direct at least $10 billion to federal deficit reduction.