Legislation hailed by supporters as the most significant change to college student lending in a generation passed the House on Sunday night.
The student aid initiative, which House Democrats attached to their final amendments to the health-care bill, would overhaul the student loan industry, eliminating a $60 billion program that supports private student loans with federal subsidies and replacing it with government lending to students. The House amendments will now go to the Senate.
By ending the subsidies and effectively eliminating the middleman, the student loan bill would generate $61 billion in savings over 10 years, according to the nonpartisan Congressional Budget Office.
Most of those savings, $36 billion, would go to Pell grants, funding an era of steady and predictable increases in the massive but underfunded federal aid program for needy students. Smaller portions would go toward reducing the deficit and to various Democratic priorities, including community colleges, historically black colleges and universities, and caps on loan payments.
The bill's greatest impact would fall on the more than 6 million students who rely on Pell grants to finance their education. Pell, launched in 1973, once covered more than two-thirds of total costs at a public university. It now covers about one-third.
The student aid measure was initially framed as a boost to the Pell program. Now it is seen as its salvation. Democratic leaders say that without a massive infusion of cash, the maximum grant could be scaled back by more than half to $2,150 and at least 500,000 students could be dropped from the program ...
In its first iteration in the summer, the student aid bill was a standalone measure that delivered a substantially larger savings -- $87 billion -- for Pell and other Democratic education initiatives.
The figure dropped to $61 billion, chiefly because colleges have begun switching to direct government lending, anticipating that the law will change. Some private loan companies have retreated from the program as well, both because of harsher lending conditions and the looming changes. The volume of subsidized loans shrank from $61 billion in fiscal 2009 to $50 billion in fiscal 2010, according to a preliminary industry estimate. But direct government lending rose from $21 billion to $30 billion. Some of the savings promised in the bill are, in effect, already realized.
Ambitions are diminished in the revised legislation, released last week.
The amount directed at Pell grants would drop from $40 billion to $36 billion, and a portion of the smaller amount would go toward closing an unexpected shortfall in the grant program, oversubscribed because of the recession. The annual Pell grant would rise to $5,975 by 2017 from the current $5,550, and for the first time, it would be linked to the consumer price index. In the original House bill, the Pell target was $6,900.
Community colleges would get $2 billion, down from $10 billion in the original bill. More than $20 billion in initiatives for early education, K-12 school modernization and student loan interest-rate reduction would be eliminated. But a $2.6 billion investment in historically black colleges would survive. The new bill also includes a $1.5 billion initiative that would cap a borrower's monthly loan payments at 10 percent of income, down from 15 percent.
Student loan and health-care retooling were combined in one bill after Democrats lost their filibuster-proof supermajority in the Senate. Democrats then steered both measures into the budget reconciliation process, which requires only a simple majority. Congressional rules allow only one reconciliation bill.