Increased Pell Grants Among Provisions of Student Loan Reform

Significant reforms to America’s student loan system will re-invest $58 billion into financing higher education without using a cent of taxpayer money, said Secretary of Education Arne Duncan in a conference call Tuesday afternoon.

Earlier that day, President Obama signed into law the Health Care and Reconciliation Act, which will end government subsidies to banks and other financial institutions, taking the job of handling student loans outside the private sector.

The act will free up nearly $68 billion in savings, according to the non-partisan Congressional Budget Office.

About $10 billion of those funds will go towards reducing the federal debt and the remaining $58 billion will be committed to increasing Pell Grants, strengthening the community college and minority college systems and supporting an income-based loan repayment program.

“Several months ago, the president set a goal,” said Duncan. “That goal was that the nation should graduate the highest percentage of college graduates in the world by 2020.

“To help create a better economy in the future is to invest in education,” he added. The new act “will ensure [the United States] a higher level of competition in the global economy.”

President Obama signed the act Tuesday morning on the campus of North Virginia Community College in Alexandria, VA, where Vice President Joe Biden’s wife, Jill, teaches English.

“I am honored to be a community college instructor,” said Dr. Biden, who has taught for 30 years, 16 at a community college. “I see every day in my classroom just how hard my students work in order to pay their tuition bills. Thanks to the leadership of President Obama, our Vice President, and members of Congress here today, families across the country will find it a little easier to get to college and stay in college.”

“For almost two decades, we’ve been trying to fix a sweetheart deal in federal law that essentially gave billions of dollars to banks to act as unnecessary middlemen in administering student loans,” said President Obama.

“Today, we’re finally making our student loan system work for students and our families. This week, we can rightly say the foundation on which America’s future will be built is stronger than it was one year ago.”

Students will see an increase in the number of Pell Grants being awarded – an additional 800,000 over ten years - and an increase in the value of the grants from $5,500 to almost $6,000, said Obama. Eligibility for the Pell Grant has been extended to students with a household income of up to $50,000 if they can demonstrate need.

“Pell Grants once covered more than three-quarters of the cost of going to college,” Obama told the crowd in Alexandria. “But now, because the cost of college has skyrocketed, the amount Pell Grants cover is about one-third.”

The new act, when combined with funding provided through Recovery Act and the president’s first two budgets, more than doubles the amount of Pell Grant funding that was available when Obama took office.

More than $40 billion of the $58 billion investment will go towards the grants over the next decade, said Duncan. It will “open access to students who don’t have access.”

Students can also expect a dramatically simplified FAFSA form, said Duncan.

“The FAFSA was a barrier. That form scared people off from applying.”

The act will also expand the existing income-based loan repayment program. Currently, borrower’s student loan repayments are capped at 15 percent of their income. Repayments will now be capped at 10 percent of the borrower’s income. Plus, if borrowers keep up payments over time, the entire balance of their loans will be forgiven after 20 years.

About $2 billion over four years will be put towards developing, improving, and providing education and career training programs for community colleges. Dr. Biden will also host a White House summit on community colleges this fall.

“I have seen firsthand the power of community colleges to change lives and serve as a gateway to opportunity for students at all stages of their lives and careers,” said Dr. Biden.

Money will also be invested in minority colleges, including Historically Black Colleges that have been hit particularly hard by the country’s economic climate.

During the conference call, Secretary Duncan also addressed concerns that pulling the student loan service away from banks and to the government will cost thousands of jobs in the private sector, and also affect customer service.

There would be no job loss, he explained, and “customer service is less around the origination of the loan, and more around the servicing of the loan. One hundred percent of the customer service will be done by the private sector. The private sector will have huge role to play in the servicing of these loans.”

“We don’t believe that this will be a job-loser,” said Melody Barnes, the Domestic Policy Council Director. “In many cases, jobs that are overseas we have started to see return home.

“By shifting to direct lending, we’ll be able to counteract uncertainty for students and families when they’re waiting to get loans. We’re going to provide greater reliability to ease the minds of parents.”

The act found support on Suffolk's campus, but students were catiously optimistic.

"Its a great bill put forward by the president," said junior Guy Zagami. "A few things do worry me with this. One being, will more be paid out than what it brings in? $58 billion sounds like a lot, but you multiply that out to the large number of current students and of course, future college students, wheres the money going to come from then if only 10 percent of incomes will be paid back for only the first 20 years of their life?"