Getting Money for Tuition from the Feds

One thing that has never been said about the federal financial aid system is that understanding it is a piece of cake. If you have ever had to fill out a FAFSA, you already know that your first college challenge is figuring out how to get money for your tuition from the feds. If this is you, you’ll be glad to hear that it may be possible to change big bureaucracy after all.

On July 21st, the U.S. House of Representatives will discuss the new Student Aid and Fiscal Responsibility Act, which the Hon. George Miller (D-CA), Chairman of the House Committee on Education & Labor, introduced last week. The SAFRA, as it’s already being referred to, contains sweeping changes to the ways federal money for education is allocated and managed. Theoretically, some of the changes would free up funds to pay for all the others, which means that the reorganization would cost us taxpayers nothing.

The new legislation also reemphasizes the Education Department’s plan to more closely align work and higher education.

How does the SAFRA help you find money for your college tuition? There are several changes to the student aid system that will make things easier for students at both the start and the end of the financial aid timeline. SAFRA:

  • Boosts the Pell Grant maximum to $5,550 in 2010 and $6,900 by 2019. (About 6 million students received a Pell Grant in 2007-2008.) Starting in 2010, the scholarship will be linked to match rising costs-of-living by indexing it to the Consumer Price Index + 1%.
  • Lowers the interest rates on need-based (subsidized) Stafford loans, the primary federal student loan, and changes the interest rate from fixed to variable in 2012, to keep the rate low. (Nationwide, about 5.5 million students take out Stafford loans each year.)
  • Increases access to the Perkins Loan program by expanding it to every U.S. college campus. (Last year approximately 495,000 students received a Perkins Loan.)
  • Follows through on simplifying the FAFSA, cutting down the number of questions on the form by allowing students and families to use their tax return information. (In 2003-2004, over 1.5 million college students who likely were eligible to receive Pell Grants didn’t apply for financial aid because they found the FAFSA form too confusing.)
  • Converts all new federal student loans to the Direct Loan program. Beginning July 1, 2010, all new federal student loans will be originated through the Direct Loan program, instead of through lenders subsidized by taxpayers in the federally-guaranteed FFEL student loan program. Unlike the lender-based program, the Direct Loan program is entirely insulated from market swings and can therefore guarantee students access to low-cost federal college loans, in any economy. Having the feds provide the money for and set interest rates on federal student loans also removes any potential for conflicts of interest between lenders and colleges.
  • Uses a competitive bidding process to select private loan servicers based on how well they serve borrowers, educate them financially, and prevent loan defaults. The Education Department wants to acknowledge private lenders for their customer service effort and create a new public-private partnership that would sustain it.
  • Invests $1.2 billion in Historically Black Colleges and Universities and Minority-Serving Institutions to provide students with the support they need to stay in school and graduate, and invests $3 billion to increase college access and completion support programs for students. There’s also more funding for the College Access Challenge Grant program, and for state and college programs to increase financial literacy and student retention.

In short, SAFRA makes much more federal money for tuition available, makes it easier to apply for, insulates it a little better from roller-coastery financial markets, and makes repaying it a little less painful (if the legislation survives the House and Senate mostly intact, that is). What’s not to like?

The United States Student Association, a longstanding advocate for college students, gave Mr. Miller’s bill an A+: Students Thrilled with Student Aid Reform Bill. In a previous statement about the substantial budget investments targeted for higher education, USSA President Carmen Berkley commented, “Funding for these programs is important not only for the financial health of the country, but because everyone has the right to an affordable college education.” (Don’t miss USSA’s press release today, which summarizes data from a new report on the Direct Loan program.)

Stay tuned to as we follow the coming House and Senate debates about the SAFRA. Sometimes criticism and debate uncover genuine problems with a plan; other times, they are just a lot of posturing and hot air. There is good intent in Mr. Miller’s bill, and so far, the Congressional Budget Office says it will pay for itself. If it becomes law, the process of getting money for tuition from the feds may become a little more user-friendly.

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