Pushed through as part of the sweeping health care reform vote, the House approved new legislation that reorganizes the country’s college aid program. The new bill eliminates reliance on private lenders for federally-backed student loans and transfers sole control to the Department of Education.
“This will have the net effect of making the loan process simpler for most students,” said Patrick Moore, the financial aid director at USC. “So the process of, ‘Do I choose this lender, do I choose [another] lender?’ goes away.”
Under the current system, the government guarantees college loans offered by financial institutions at low yearly interest rates and subsidized private lenders to keep rates low. The new legislation would mean the government would offer direct loans to students, which Democratic lawmakers say would make the loans more reliable and affordable.
USC's director of financial aid talks to ATVN about how the student aid bill will simplify the process for many students.
The bill directs $36 billion in savings to new spending on Pell grants, serving students in financial need, as well as providing another $4 billion to historically black colleges and community colleges. It would also provide about $19 billion for deficit reduction to offset expenses in health care legislation.
“We made the decision to move to direct loans here at USC regardless of what happened with the legislation over the last two days,” Moore said.
The bill was pushed through as part of the health care package and will be approved by the Senate through the controversial expedited “budget reconciliation” process, which requires only a simple majority rather than the filibuster-proof super majority of 60 to pass.
Private lenders have lobbied tirelessly to stop the bill, saying it would result in major job losses for the industry.
The House passed a similar bill last year but it was blocked in the Senate when it fell short of super majority support.
Over the last year, an increase in demand for Pell grants as unemployed workers returned to school, left a $19 billion shortfall in the program. The $36 billion redirected to Pell grants by the bill would put $13.5 billion toward closing that gap.
In its present form, the bill stops short of aims to appropriate more spending on Pell grants over the next five years. The bill passed by the House last year had included provisions to increase the amount of Pell grants each year by the consumer price index plus 1 percent but was taken out of the current bill following Republican criticism.
