Faculty and Staff

House Approves Student Aid Overhaul

The House has approved legislation to implement the President’s plan to overhaul the federal student aid system. The Student Aid and Fiscal Responsibility Act (H.R. 3221) would save an estimated $87 billion over 10 years by eliminating the federally subsidized private student loan market and moving all new subsidized loans into the Direct Loan program. 

The House-passed bill would direct $40 billion of the expected 10-year savings into the Pell Grant program, providing for a $200 increase in the maximum Pell Grant award to $5,550 in 2010 and indexing annual increases to the rise in the Consumer Price Index plus one percent.  (The Pell Grant increase is also supported by mandatory funding through the College Cost Reduction Act.)

Additional savings from H.R. 3221 would be used to expand and change the criteria for the Perkins Loan Program, keep interest rates on subsidized federal student loans low by making them variable in 2012, and create a new College Access and Completion Innovation Fund designed to support new approaches to improving higher education access and student graduation rates. 

Savings also would be used to provide $10 billion for the President’s community college initiative; $8 billion to improve early childhood education; $4.1 billion for modernization and repair of school and college facilities; and $10 billion for deficit reduction.  Additionally, the bill would simplify the federal student financial aid form. 

Among concerns that have been raised in the higher education community about the bill is the proposed overhaul of the Perkins Loan Program, which could obligate institutions either to pay interest on behalf of their student borrowers while they are in school or to pay new participation fees. 

Also of concern is the proposed College Access and Completion Innovation Fund, which is intended to help achieve the President’s goal of increasing the number of college graduates.  Only 25 percent of the available funding ($3 billion total over five years) would be available for competition among higher education institutions.  States would retain the majority of funding, and to be eligible for grants, they would have to develop rigorous statewide longitudinal data systems, which could give states major new regulatory control over public colleges and universities. (The original proposal included private institutions, but they received an exemption in the final House bill.) 

The Senate companion measure is expected to be introduced soon.