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Editorial: Student Aid Act crucial for students, nation's economy

Sept. 24, 2009

Last Thursday the House of Representatives passed a historic set of reforms that will substantially change the face of federal student financial aid programs.

The Student Aid and Fiscal Responsibility Act makes the federal government the direct lender for student loans, eliminating federal subsidies to private lenders. Students will get new loans originated through the government's Direct Loan program. This is a change proponents of the bill contend will make college loans more reliable for students and families and guarantee that loans operate in the best interest of borrowers and is one that is much-needed.

The Obama administration has said that this reform of the loan system will save taxpayers more than $80 billion over 10 years and will direct $10 billion in savings back to the Treasury to reduce entitlement spending.

Effective July 1, 2010, the government's Direct Loan program would terminate the Federal Family Education Loan program, in which private lenders provide government-backed loans for eligible students, and in turn effectively cut out the middleman role played by banks and other lenders.

According to the Washington Post, direct government lending in the last academic year accounted for about a quarter of federal loan volume.

As the single largest investment in federal student aid in history, the money will be used to make sure that interest rates on student loans remain low while expanding the Pell Grant program, and investing in community colleges and early childhood programs. The bill calls for investing $40 billion of the savings to increase the maximum amount students can receive under the Pell Grant program, which awards financial aid based on need. These grants are the main federal college scholarship for low-income students. The amount of the Pell grants will increase from its current figure of $5,350 to $5,550 in 2010 and $6,900 by 2019. In 2011, the amount of the scholarship will also be linked to the cost of living.

The bill also contains promises to simplify the Free Application for Federal Student Aid, or FAFSA, and expand access to Perkins Loans to every U.S. college. The FAFSA, often seen as a cumbersome and complicated process, is often perceived as a roadblock for students. By simplifying this process, more students can attempt to get the help they need to pursue higher education without being intimidated or hindered by this application..

Passed 253-171 in the House, the bill is expected to move to the Senate for a vote toward the end of the month. Though the bill was passed largely along party lines, this should not be seen as simply a partisan attempt to use an upper hand. The Senate should see this bill for what it is--an earnest attempt to strengthen the nation's education system through honest efforts at reaching out and providing students with all means necessary to complete college or job training.

Tuition at both public and private schools has been consistently rising, and families have been stumbling to keep up while simultaneously wading through these tough economic times. As the public has become increasingly wary of bankers, subsidies have become a target of the same skepticism, a factor that probably contributed to the Democratic Party's success in passing this bill through the House.

President Obama released a statement saying that this legislation will end the billions of dollars in subsidies handed out to banks and financial institutions, and the money will instead be used to make loans and other means of financing more accessible and college more affordable.

Though the opposition may see this as just another area overtaken by the federal government that may lead to job loss through the industry or a burden on universities during the transition out of their respective federal lending programs, it is a risk and a burden well worth shouldering.

This is a crucial step toward rebuilding the American economy. By making sure young people have the means and access to education, we are ensuring that they enter the work force highly skilled, educated, and with the ability to contribute substantially to a highly fluctuating market and a constantly changing world. The Senate would be doing this country a great service by voting yes to this legislation.

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