“This legislation offers the most sweeping changes to the federal student loan program in a generation,” Hinojosa said. “It is good for students, taxpayers and American jobs. By cutting federal subsidies to lenders we are investing money directly in our students and our institutions of higher education and reducing our deficit.”
The legislation would eliminate subsidies to banks in the federal student loan programs, and instead originate all federal student loans directly through the government.
According to the Congressional Budget Office, this change would generate $61 billion in savings over 10 years that will be used to boost Pell Grant scholarships, make student loans more manageable for borrowers to repay, and strengthen community colleges. It reduces the deficit by at least $10 billion over 10 years, Hinojosa added.
Private lenders and banks would still have a role in servicing all federal student loans, which would guarantee borrowers high-quality customer services, maintain jobs in the private sector and even protect jobs from being shipped overseas. Direct government loans, unlike loans made by banks, must be serviced by U.S. workers.
Specifically, Hinojosa noted, these provisions will:
• “Make college more affordable for millions of students by investing a total of $36 billion into the Pell Grant program over 10 years, including $22.6 billion to increase the maximum Pell Grant award to keep up with inflation. The bill increases the maximum award from $5,550 next year to nearly $6,000 over the years ahead. In the 2008-2009 year, 6.2 million Americans relied on Pell Grants to help pay for college and career training; 89 percent of those students came from families making less than $40,000 per year.
• “Protect students’ Pell Grant scholarships from the upcoming budget shortfall. The provisions will direct $13.5 billion of the $36 billion Pell Grant investment to address most of the gap needed to ensure there is not a dramatic cut in Pell Grant funding in 2011. Because the Pell Grant program will be faced with increased costs due to higher demand, the maximum award could decrease to $2,150 from its current value of $5,350. If this is not addressed, students could see a decrease in aid of almost 60 percent and nearly 600,000 students could lose the benefit entirely.
• “Invest $2.55 billion in Historically Black Colleges and Universities and Minority-Serving Institutions. This bill recognizes the important role that minority-serving institutions like the University of Texas Pan-American play in educating our country’s low-income and minority. The funds will allow these critical institutions to recruit and graduate minority students, particularly in the fields of math, science, engineering and technology, that our nation needs to remain competitive.
• “Make federal student loans more manageable to repay by strengthening an Income-Based Repayment program that currently allows borrowers to cap their monthly federal student loan payments at just 15 percent of their discretionary income. These new provisions would lower this monthly cap to just 10 percent for new borrowers after 2014.
• “Give students the support they need to stay in school and graduate. The provisions invest $750 million in the College Access Challenge Grant (CACG) program. These formula grants to states help organizations provide services that increase the number of low-income students who are prepared to enter and succeed in college and manage their student loans, such as financial literacy and debt management skills.
• “Prepare students and workers for competitive jobs by investing $2 billion in a competitive grant program for community colleges like South Texas College, Texas State Technical College and Coastal Bend College to develop and improve educational or career training programs.
The bill now moves to the Senate for further consideration.