Student aid overhaul passes House


The federal government is moving toward the most sweeping overhaul of college financial aid in decades.

The House of Representatives voted for the measure as part of its passage of health care legislation Sunday.

Under the proposal, private lenders would no longer make federally subsidized student loans. Instead, the government would make all such loans itself, instead of only some as it does now.

Eliminating the middleman would save the government an estimated $61 billion over the next decade. About $36 billion of that would be used to increase so-called Pell grants for lower-income students. The legislation also allocates $2.5 billion to historically black colleges, $2 billion to community colleges and at least $10 billion to reduce the federal deficit.

The Senate is expected to take up the measure as early as this week.

Backers of the move hailed it as a boon for students struggling to pay for college in a tough economy.

“This is incredibly good news for students and families and taxpayers,” said Lauren Asher, president of the Project on Student Debt, a nonprofit advocacy group in Berkeley, Calif. “Taxpayer dollars that were being used to guarantee private lenders’ profits are now being redirected to student aid and other important reforms to help keep college more affordable.”

The bill would boost annual Pell grants, which go to about 6 million students, to a maximum of $5,975 by 2017 from $5,550 this year.

Without the legislation, the grants could be cut in coming years to offset a funding shortfall.

But other advocates said the bill wouldn’t do enough to ensure cash-strapped families access to college.

An earlier version would have boosted the maximum Pell grant to $6,900. And even though the grants would be indexed to inflation for the first time, that provision would be in effect for only five of the next 10 years, said Mark Kantrowitz, publisher of, a college-aid Web site.

“It’s falling far short of tuition inflation,” he said. “It could have been a lot better.”

Thirty years ago, Pell grants covered 77 percent of the average tuition at a public university, Asher said. That’s down to 35 percent today.

The financial industry has lobbied hard against the bill, arguing it would cost jobs at student-loan companies, which would still have contracts to service some student loans.

Kevin Bruns, executive director of America’s Student Loan Providers, a trade group, predicted the legislation would reduce the quality of service to borrowers because private operators would make lower profits.

“The margins on service contracts are pretty narrow,” he said.

This article was distributed by McClatchy-Tribune Information Services.