Student aid bill poised to pass the Senate this week

While health care has been in the national spotlight for many months, legislation to reform student financial aid has been lurking in the shadows.

As early as Thursday, the U.S. Senate could approve an overhaul of the student financial aid system that would deliver larger Pell grant awards to low-income college students and switch federal loans to direct lending.

The reform is part of the Health Care & Education Affordability Reconciliation Act of 2010, which both eliminates subsidies for private lenders and puts the finishing touches on the health care reform legislation that President Barack Obama signed into law Tuesday.

To pass the Senate, the bill needs 51 votes, and Senate Majority Leader Harry Reid (D-Nev.) has said that he has signed support for the bill from 52 Senate Democrats.

The House of Representatives passed the bill, which makes the federal government the source for student loan funding, on Sunday. The borrowing process won’t change, but students seeking PLUS loans should find it easier and slightly cheaper to borrow funds. Private companies will still handle billing and support for the loans.

Cutting out payments to lenders such as Sallie Mae and private banks would save the U.S. Treasury $61 billion during the next decade. Nearly two-thirds of those savings would go toward increasing Pell grants in five out of the next 10 years.

Pell grants are federal grants awarded to low-income students. The majority of Pell grants go to families earning less than $30,000 annually. The federal Pell Grant Program is expected to fund $32 billion in grants for more than eight million low-income students this year.

The Student Aid and Fiscal Responsibility Act passed by the House in September called for Pell grant awards to be tied to the Consumer Price Index for all urban consumers plus 1 percent. The bill, now in the Senate, does not include the extra 1 percent and only indexes to inflation between 2013 and 2017, but the maximum Pell grant award would still jump to $5,975 by 2017 from $5,350 this academic year.

Without adoption of the reconciliation bill, awards would be cut 60 percent, starting in the fall of 2011, decreasing Pell grants to $2,150 because the 2008 stimulus bill funds that provided a boost to the program in 2009 are set to run out in 2011. An unexpectedly high number of grant recipients during the economic downturn, including 800,000 more students than expected last fall, has driven the program into a $19 billion deficit since 2008. Of the $36 billion pegged for Pell grant funding, $13.5 billion would be used for reducing the program deficit.

USC California Student Public Interest Research Group organizer William Sealey said passage of the bill would mark a huge success for students.

“The bill makes sure [the federal government] provides billions of dollars to grant aid for students that doesn’t have to ever be paid back,” he said.

House Committee on Education and Labor member Joe Courtney (D-Conn.) said the Pell grant cap increase is the most important part of the bill.

“This is the single greatest infusion to student aid by the federal government since the G.I. Bill,” he said in a conference call.

Some, however, believe the transition to direct lending is equally important.

Alex Silkin, a freshman majoring in business administration who worked with CalPIRG to lobby for the financial aid reform, said the bill fixes a system that no longer makes sense.

“The government is basically paying banks to give out money, but this streamlines the system and takes private investors out of the equation,” he said.

Lawmakers had budgeted for more savings, up to $87 billion, but some universities have already begun switching to federal lending on their own. According to Rep. Tim Bishop (D-N.Y.), House rules for calculating savings only allow consideration of money saved at the time of the bill’s passage. Overall savings, however, are estimated to remain near $80 billion.

Last summer, about 20 percent of colleges had direct lending programs. Now, 40 percent have switched to the program, and by this time next year, Bishop estimated that 70 percent of schools would implement it if student aid reform fails to pass this year.

The direct lending aspect of the bill has been controversial, but several democratic representatives were swayed to vote for the bill after hearing students would see their Pell grants decline steeply — as many as 600,000 students would lose their aid altogether.

A Pell grant recipient, Christian Daly, a junior majoring in English, said the grant takes pressure off students and parents wondering how to send their children to college, especially to an expensive one like USC.

“The Pell grant means opportunity,” he said. “It’s a glimmer of hope and a light for the student and the parents so that they can go to school and receive the education they want.”