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Landmark Student Loan Program Passes House

Major legislation to make college more affordable and reform the federal student loan program passed the U.S. House of Representatives on September 17. The Student Aid and Fiscal Responsibility Act (SAFRA) incorporates both cost savings and historic investments in streamlining federal college aid and expanding access to low-interest loans. The largely party-line vote in the House was 253 to 171. The Senate’s Health, Education, Labor and Pensions committee, led by Sen. Tom Harkin (D-IA), a high-profile supporter of the plan, will take up the measure next.

The central feature of the bill addresses the unwarranted federal subsidies and incentives that have been paid for decades to private lenders and banks as the issuers of loans on behalf of the federal loan program. The Congressional Budget office estimated that as much as $87 billion of such payments to the private lenders could be saved in the next ten years simply by redirecting those funds into the direct federal loan program and other significant education investments beginning in 2010.

That’s exactly what the SAFRA legislation does.

The bill adopts a large chunk of President Obama’s higher education plan, making college more accessible an
affordable while directing aid to students, schools and colleges rather than private financial firms.

“No student in America should have to mortgage their future to get a good education. This legislation provides students and families with the single largest investment in federal student aid ever and makes landmark investments to improve education for students of all ages – and all without costing taxpayers a dime,” said U.S. Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee and the author of the bill. “Today the House made a clear choice to stop funneling vital taxpayer dollars through board rooms and start sending them directly to dorm rooms. This vote was a historic triumph for America’s students, families and taxpayers – and will ensure that their interests never again take a backseat to lenders and big banks.”

The legislation would take the estimated savings of $87 billion over ten years and invest it in students, their families and their educations by:

• Investing $40 billion to increase the maximum annual Pell Grant scholarship to $5,550 in 2010 and to $6,900 by 2019. Starting in 2010, the scholarship will be linked to match rising costs-of-living by indexing it to the Consumer Price Index plus 1 percentage point;
• Investing $3 billion to bolster college access and completion support programs for students;
• Strengthening the Perkins Loan program, a campus-based program that provides low-cost federal loans to students;
• Keeping interest rates low on need-based – or subsidized – federal student loans by making the interest rates on these loans variable beginning in 2012. These interest rates are currently set to jump from 3.4 percent to 6.8 percent in 2012;
• Making it easier for families to apply for financial aid by simplifying the FAFSA form;
• Providing loan forgiveness for members of the military who are called up to duty in the middle of the academic year.
• Investing $2.55 billion in Historically Black Colleges and Universities and Minority-Serving Institutions to provide students with the support they need to stay in school and graduate; and
• Investing $10 billion to build a world-class community college system that prepares students and workers for the jobs of the future – and jobs in high demand by local employers – by incentivizing community colleges to partner with businesses, job training and adult education programs.

In addition, the Student Aid and Fiscal Responsibility Act will direct $10 billion of these savings back to the U.S. Treasury to help cut entitlement spending.

It will invest over $4 billion for school modernization, renovation and repair projects — restoring one-fourth of the renovation funds cut by Senate “centrists” in the final version of the stimulus bill. This investment will help improve elementary and secondary school buildings across the country and help the nation transition to a clean energy economy.

And it will also invest $1 billion per year over eight years to help ensure that the next generation of children can enter kindergarten with the skills they need to succeed in school.

In his statement on the House floor before the final vote, chairman Miller said:

This simple change will save $87 billion over ten years.

And, as part of our efforts to invest in a brighter future for our children, we will direct $10 billion of these savings to reduce entitlement spending.

The choice before us is clear. We can either keep sending these subsidies to banks – or we can start sending them directly to students.

No child in America should have to mortgage their future to pursue their dreams.

Often in the past good legislation passes the House and then languishes on the shelf in the Senate. Apparently that’s not going to happen this time. Alyson Klein at the Politics K-12 blog for EdWeek reports:

Sen. Tom Harkin, D-Iowa, the brand-new chairman of the Senate Health, Education, Labor, and Pensions Committee, put out a statement just moments after the bill’s passage, congratulating the House and saying that he plans to introduce “similar” legislation. A Senate Democratic aide told me Harkin’s bill, which will likely get committee consideration in the coming weeks….

UPDATE: President Obama today congratulated the House of Representatives for passing SAFRA, and urged the Senate to take up the legislation soon. In a speech at Hudson Valley Community College in Troy, NY, President Obama said:

“Ending this unwarranted subsidy for big banks is a no-brainer for folks everywhere,” Mr. Obama said, before lashing out against his favorite target of late. “Everywhere except Washington, that is. In fact, we’re already seeing the special interests rallying to save this giveaway.”

He said he looked forward to winning the fight to pass the plan in the Senate and signing this historic legislation for America’s students.

Tags: Education, SAFRA, student loans