Paying for College: What the Future Holds

When President Obama signed the Health Care and Education Affordability Reconciliation Act on March 30, most people were focused on the health care aspects of the bill. But a large part of the measure was also dedicated to education reform. The Student Aid and Fiscal Responsibility Act, an important part of the bill, is aimed at changing the way our nation’s college students pay for their schooling and will have an affect on the younger generations of Americans.

“I feel good about it from what I know,” said Lily Polatchek, 19, a student at Connecticut College in New London, CT. “College in the U.S. is so expensive, and without a good system of financial aid, it is impossible for some people to pay for school.”

Polatchek would know; one year of school at Connecticut College costs $53,110, according to the school’s website. That doesn’t include the costs of books, supplies, and general living expenses. She had to take this semester off to apply for loans and figure out how she would finance the rest of her education. Luckily for her, it seems that the government may be stepping in to help.

“I think they are increasing Pell Grants,” said Polatchek, “meaning my financial aid would come more from grants than loans.”

Indeed, according to the House Committee on Education and Labor, $36 billion will be invested over the next ten years to increase the maximum annual Pell Grant scholarship. The legislation will also invest money in things like an Income-Based Repayment program for borrowers and supporting students at Historically Black Colleges and Universities and Minority-Serving Institutions.

Perhaps the most controversial part of the measure, however, is the federal student loan program, called Direct Loan. According to the House Committee, this won’t affect private lenders, because all of Direct Loans will be serviced by private lenders who will compete for contracts to service the loans. For students and taxpayers, the Direct Loan program is more reliable and cost-effective, or so says the House Committee, which is made up of 49 representatives from the House, the Democrats being the majority.

Those who opposed the student loan measure, however, said that the Direct Loan program would not help students and amounted to nothing more than another government takeover, this one created to help finance the huge health care bill with which it was passed. “Nineteen million college students are going to be unhappy when they find out that this latest Washington takeover overcharges them on their student loans to help pay for thew new health care law and other government programs,” said Senator Lamar Alexander (R- TN) in a press release on March 30th. “Any savings should go to the students, not the government.”

Republicans also took issue with the fact that private lenders would be eliminated from the process. Despite the Democrats’ assurance that the bill would not cause severe job loss because of the incorporation of private lenders into the Direct Loan program, banks were fighting against the bill and Republicans claimed it would leave many unemployed. Senator Alexander estimated 31,000 employees who currently work on getting students loans would be left jobless. Even Democratic Senator Ben Nelson of Nebraska opposed the bill, one of the few Democrats to do so, likely because the commercial lending bank Nelnet is based in his state.

On the other side of the spectrum, some thought the measure did not do enough to help students. Financial aid expert Mark Kantrowitz, from FinAid.org, thought the Pell Grant program should have been given more money to increase the scholarship. Although he conceded that without this legislation their would have been a significant decrease in the maximum Pell Grant this coming fall, he said that the program should be doubled and then increased to over 1% the inflation rate.

“Most of the money went towards maintaining the current level and leaving very little money for any actual increases,” said Kantrowitz. “Obviously there’s a lack of political will to devote new money to the Pell Grant program.”

But after a long political battle, Democrats seem pleased with the bill they got passed. In a statement released shortly after the bill’s signing, Representative George Miller (D- CA), chairman of the House Committee on Education and Labor, described the legislation as a “major step” for the American middle class.

“Because of this law, college students will be able to graduate with less debt, less burdensome debt payments, and more opportunity,” said Miller in the statement.

The “less burdensome debt payments” is a reference to the bill’s revised Income-Based Repayment Program, which would lower the cap for monthly payments to just 10% of a borrowers’ income. This should make it easier for borrowers to pay off their student loans.

“I think this measure shows that student debt is extremely common,” said Polatchek. “People dig themselves a hole with college loans, and it’s reassuring to know that the government is at least trying to help us get out of that hole.”