Speaking at the White House, President Obama said the legislation will “help us reach the goal I set out in Michigan this week to graduate five million more Americans from community colleges by 2020.
“These institutions can act as job training centers for the 21st century, and this legislation makes the largest investment in community colleges in fifty years, challenging them to increase completion rates, strengthen ties with businesses, modernize facilities, and offer new online learning opportunities.”
The bill, H.R. 3221, would raise $100 billion by transferring all federal student loans from private lenders to the government-run Direct Loan Program by 2010.
The $100 billion savings from subsidies paid to banks for fees and loan guarantees will be reinvested instead in community colleges and other institutions of higher learning, as well as directly in students through increased Pell Grant scholarships, and lower interest rates on tuition loans.
“I continue to say that we have to focus on education if we want to make a difference that will last 30, 50 years into the future,” said Congressman Sablan.
“Working for passage of the Student Aid and Fiscal Responsibility Act is just one more way I can use my seat in Congress and my seat in the House Education and Labor Committee to make changes in the lives of the people of the Northern Mariana Islands today and long into the future.”
The legislation makes college more affordable by increasing Pell Grants each year to keep pace with inflation. The bill will also simplify financial aid forms to increase the number of students who can get tuition assistance.
Under the current setup government pays private lenders to make the loans and administer them. The federal government also often pays to buy back those loans from private companies when they are no longer profitable.
By transitioning to all direct lending, Congress will eliminate those subsidies, bringing savings to taxpayers and reinvesting in student loans. The Direct Loan program is insulated from market swings, and the reinvestment of those savings in student loans will ensure that fair, equitable, and affordable student loans are available regardless of market conditions.
Congress also believes that these changes will bring better customer service. Private lenders will be allowed to compete for contracts to service loans, ensuring that students receive the best service available. Non-profit lenders will also have the opportunity to continue servicing loans.
Of the $100 billion in savings, $40 billion will go to increasing the maximum annual Pell Grant scholarship to $5,550 in 2010 and $6,900 in 2019. The bill will also link the scholarship to the Consumer Price Index to help it keep up with the costs students face.
An additional $3 billion will go to college access and completion programs, including competitive and challenge grants to schools and organizations that create innovative support programs for students. Changes to the Perkins Loan Program and the interest rates on federal student loans will ensure that students are better able to pay back any money they do borrow.
Many of these programs will take place at Community Colleges, which will receive grants to spur innovation in business coordination and workforce training. Money will also be available to ensure access to community colleges and completion of degree programs, as well as improvements to facilities.
To make sure that all students who are eligible for aid receive it, the legislation calls for simplifying the Free Application for Federal Student Aid (FAFSA) form and sharing information with the IRS to make the application process easier and more comprehensive.
Finally, some of the savings from this legislation will be invested in school modernization programs, Early Learning Challenge Grants to improve kindergarten readiness and access to early childhood programs, and reducing the federal deficit.
