Student Loan Reforms on the Way

mTwo bills, one in the House and one in the Senate, will deliver student loan reforms not seen in over 60 years. This is great news given that the average U.S. college grad leaves college with $19,200 in debt. Many students struggle to pay down their college debt, which usually comes due within 6 months of graduation. This struggle is exacerbated when students pursue careers in public service or teaching, careers that traditionally pay lower salaries. Even students that accept jobs in higher-paying career fields can find themselves unable to manage student loan payments, rent on new apartments and, oh yeah, food.

Both the House and the Senate's bills will provide some much-needed relief to current and future college students, and families considering the amount of debt their students' may have to carry in order to attend their first-choice schools. Though, the House bill, the 2007 College Cost Reduction Act, may be the most beneficial to the most students.

The House Bill

The 2007 College Cost Reduction Act, will benefit students in 6 important ways:

• More Money - More students eligible for federal loans, both subsidized and unsubsidized

• Lower Interest Rates - Interest rates on federal loans and federally subsidized loans will be cut in half in the next five years, from 6.8% to 3.4% on a Subsidized Stafford Loan.

• More Money for Food - The act would limit monthly loan payments to 15 percent of a graduate's discretionary income.

• Pell Grants Increased - Currently, the Pell Grant, a government grants awarded to the nation's neediest students, maxes out at $4,050. By 2011, the Pell Grant would max out at $5,200. The bill would also increase eligibility to about 600,000 more students.
  

• Tuition assistance - Undergraduates and graduate students who plan to teach in public schools would be able to get an extra $4,000 a year, in addition to their loans and other federal grants.
  

• Loan forgiveness (erasing the debt)- Students who pursue careers in public service, i.e. nursing, fire and police, public defenders, will have about $5,000 of their debt forgiven. Other public sector jobs may qualify students for debt for loan forgiveness after 10 years of working in the career field (and paying on the loan).

The Senate Bill

The Senate bill, which was sponsored by Ted Kennedy (D-MA), would raise the Pell Grant an extra $200 by 2012 to $5,400, and cap the amount grads pay each month to 15% of their discretionary income. But, the Senate bill does not include two very big benefits offered by the House bill--the interest-rate reduction on federal loans and the tuition assistance for public school teachers.

Both bills would slash subsidies to lenders to pay for the changes, which represent an additional $18 billion. Not surprisingly, groups representing private lenders (banks, loan companies, finance companies) are lobbying against passage of both bills because their constituents stand to lose millions in subsidies. They argue that the bills would reduce the discounts they are currently able to offer borrowers, and decrease competition leading to fewer options for students who really need assistance paying for college.

In a statement released by the Office of Management and Budget, President Bush's senior advisers have said they will recommend that the president veto the bill because they are an inefficient way to encourage graduates to go into certain professions, and because they"fail to target the neediest students currently in college and creates new mandatory federal programs that are poorly designed and would have significant long-term costs to the taxpayer."

Student groups are, of course, in favor of the reforms, especially the House bill, because it hits home by taking care of all of the ills of the current student aid system.