The process of renewing the Higher Education Act, the law that governs most federal student-aid programs, has pretty much stalled in Congress. After three years of debate, the U.S. House of Representatives finally approved legislation (HR 609) revising the act in March. But the Senate version of the bill remains in limbo because Republicans who support the proposed changes have not yet scheduled a floor vote on it. With Congressional elections coming up in November, Senate Democrats — who are hopeful that they can retake the chamber — have little incentive to cooperate in moving the legislation forward.
Congress did, however, make some significant changes in federal student-aid policy as part of a $39-billion deficit-reduction package that it approved in February. Following are some of the key changes that will go into effect this month.
Rewarding Academic Merit
Using savings from cuts it made to the federal student-loan programs, Congress created two new grant programs that will be available to students who are eligible for Pell Grants. Under the Academic Competitiveness Grant program, low-income first-time freshmen and financially needy sophomores are eligible to receive additional awards of $750 and $1,300 respectively if they have completed “a rigorous secondary-school program of study” and maintain a 3.0 grade-point average in college. The other program will provide additional awards of up to $4,000 a year to juniors and seniors who are eligible for Pell Grants and who major in mathematics, science, or certain foreign languages, such as Arabic, Chinese, and Russian. Recipients of those awards — known as Smart Grants — must also maintain a 3.0 grade-point average.
Background
Republican Congressional leaders and Bush administration officials say the new programs will help raise academic standards and push more students into mathematics and science. But student-aid experts and many advocates for colleges and students are unhappy that the programs will, for the first time, provide federal grants to undergraduates based on criteria other than financial need. The experts and advocates backed an alternative plan, offered by Sen. Edward M. Kennedy, a Massachusetts Democrat, that would have used the savings from the loans programs to provide additional aid to all Pell Grant recipients.
Shifting the Interest Rate on Student Loans
Despite some misgivings, Republican Congressional leaders allowed a scheduled change in the formula used to calculate the interest rate on federal student loans to take effect. As a result, students taking out new loans will now pay a fixed interest rate of 6.8 percent. Loans made before July 1, however, will still carry an interest rate that varies from year to year but is capped at 8.25 percent.
Background
The switch, which had once been championed by groups representing students, is a mixed bag for borrowers. With interest rates on the rise, the 6.8 percent rate looks like a bargain. However, as a result of the change, students will no longer benefit when rates drop below that level, as had been the case for the last several years. To avoid that outcome, Republican leaders of the House Committee on Education and the Workforce had called for keeping the rate variable and maintaining the 8.25-percent cap. Democrats and student advocates had lobbied for keeping the rate variable but lowering the cap to 6.8 percent.
Increasing Student-Loan Limits
Congress has increased the amount of money that students in their first two years of college can borrow from federal student-loan programs. Under the new law, loan limits for freshmen have been increased to $3,500 from $2,625, and for sophomores to $4,500 from $3,500. The total borrowing ceiling for undergraduates during their time in college will remain, however, at $23,000.
Background
College leaders and lobbyists applauded Congress for increasing the limits for first- and second-year students, saying such a move was long overdue. But many of those advocates were disappointed that lawmakers were not able to come up with the money to pay for raising the overall borrowing limit. Without such an increase, students who remain in college beyond their fourth year will have to take out smaller loans than such students can currently get.
In addition, students are likely to become more reliant on private student loans, which invariably have less-attractive terms and conditions than do those backed by the government. The interest rate that students are charged on private loans tends to be much higher, and unlike federal loans, private ones cannot be discharged if a borrower dies or is permanently disabled.
Providing New Loans for Graduate Students
Congress has made graduate and professional students eligible for federal loans, known as PLUS, that were previously available only to the parents of undergraduates. Under this program, these students will be able to borrow enough money to cover the full cost of their education minus any other financial aid they receive. Most borrowers will be charged an interest rate of 8.5 percent on these loans. However, borrowers who attend universities in the federal direct-lending program will pay a rate of only 7.9 percent.
Background
Advocates for graduate and professional students applauded the change, saying that it would help reduce those students’ reliance on more costly private student loans. Those advocates are unhappy, however, that some borrowers will have to pay higher interest rates than others, depending on the university they attend. Republican Congressional leaders say they never meant to distinguish between the two types of PLUS-loan recipients, and are pushing a proposal to reset the rate for both programs at 8.3 percent. But Democrats and advocates for students oppose the plan, saying that all graduate and professional students should be charged the lower rate.
http://chronicle.com Section: Admissions & Student Aid Volume 52, Issue 44, Page B16
