On Tuesday, President Barack Obama signed the Student Aid and Fiscal Responsibility Act that increases the amount and availability of Pell Grants and overhauls the federal student loan repayment process. The bill removes banks as middlemen who collect fees for distributing government money to students.
“This reform of the federal student loan programs will save taxpayers $68 billion over the next decade. And with this legislation, we’re putting that money to use achieving a goal I set for America: by the end of this decade, we will once again have the highest proportion of college graduates in the world,” said Obama in his weekly address Saturday.
The savings will go back into the program by increasing Pell Grants in keeping with inflation from $5,550 to $5,975 by 2017, and students with a family income up to $50,000 a year will now be eligible. The cap was previously at $20,000. The White House also says that 820,000 more grants will be distributed by 2020.
The $68 billion comes from fees the government paid to private lenders to distribute funds to students. In addition to raising the amount of money a student receives from the Pell Grant, the bill also invests $2 billion in community colleges over the next four years to help workers whose industries have been hurt.
“To make sure our students don’t go broke just because they chose to go to college, we’re making it easier for graduates to afford their student loan payments. Today, about 2 in 3 graduates take out loans to pay for college,” said Obama.
For student’s who will start borrowing money in July 2014, their repayments will be capped at 10 percent of their income, instead of the current 15 percent. And their debt will be forgiven after 20 years instead of the present 25 years. The debt could also be forgiven in 10 years if the student is in public service like teaching or the military.
The bill terminates the Federal Family Education Loan which subsidized banks and other institutions to make the loans. The Office of Management and Budget, Government Accountability Office and the Congressional Budget Office determined that directly lending money to students provided the same service at a lower cost to taxpayers.
One lender, Sallie Mae, spent over $3 million on lobbying the federal government to prevent these changes. Republicans were resistant to the changes, worrying that ending the subsidy would result in thousands of job losses in the private sector.
“Year after year, we’ve seen billions of taxpayer dollars handed out as subsidies to the bankers and middlemen who handle federal student loans, when that money should have gone to advancing the dreams of our students and working families. And yet attempts to fix this problem and reform this program were thwarted by special interests that fought tooth and nail to preserve their exclusive giveaway,” said Obama.
“To help an additional 5 million Americans earn degrees and certificates over the next decade, we’re revitalizing programming at our community colleges – the career pathways for millions of dislocated workers and working families across this country,” he said.Contact Travis Walters.