Congress mulls loan changes

A bill intended to cut out the middleman between college students and their federal loan providers passed the U.S. House of Representatives last Thursday, setting the stage for debate in the Senate over the measure that could make significant changes to student aid.

If the bill passes, all new federal student loans will come directly from the government through a direct loan program, instead of being provided by lenders like Sallie Mae or Chase. Lenders are currently subsidized by the government in the federally-guaranteed student loan program.

Last October, after almost 200 students were dropped mid-year by lender National Education, Senior Vice President for Student and Academic Support Services Robert Chernak said the University was considering moving to a direct loan program. The program requires more administrative work on the University’s end, but can ensure access to loans and streamline the process for students. He said this week that GW had applied and was approved for the federal government’s Direct Loan Program.

“We would not have begun participating at the earliest until next academic year. The plan now is to wait to see what legislation Congress will eventually pass,” Chernak said in an e-mail. “Obviously, if direct lending becomes compulsory GW will definitely be prepared to participate.”

Dan Small, executive director of the Office of Student Financial Assistance, said instability and uncertainty in the student loan market last year contributed to the University’s decision to apply for the Direct Loan Program.

“Last year, when the credit crunch affected some lenders’ ability to participate in the federal loan program and not knowing how other lenders would be affected by the down turn in the economy the University wanted to be sure our students had the ability to participate in the federal loan program,” Small said in an e-mail.

Small added that GW wanted to keep its options open so students and families would know this source of financial aid would still be available to them.

“Throughout the year we started to receive confirmation from many private lenders and banks [about] their commitment to stay in the federal Stafford loan program. With their commitment for the 2009-2010 academic year we did not have to rush forward and implement the direct lending program, students were able to obtain the necessary loan funds,” Small said.

Estimates from the Congressional Budget Office say that nearly $87 billion could be saved over the next 10 years through the student aid legislation, and savings will be used to strengthen programs like the Perkins Loan and others.

The legislation was authored by the chairman of the Committee on Education and Labor, Rep. George Miller, D-Calif.

“This legislation provides students and families with the single largest investment in federal student aid ever and makes landmark investments to improve education for students of all ages – and all without costing taxpayers a dime,” Miller said in a news release.

Small said one program the bill may give more funding to is the Pell Grant program.

According to information from Miller’s committee, $40 billion will be invested to increase the maximum annual Pell Grant scholarship to $5,550 in 2010 and to $6,900 by 2019. Currently, the maximum is $5,350.

Small said that between nine and 10 percent of the GW undergraduate population receives funding from the Pell Grant program.

“The average Pell grant is expected to increase over time, at this point [it is uncertain] if the number of students will increase,” Small said.

Changes students may see to financial aid also include the simplification of the Free Application for Federal Student Aid, according to information from Miller’s committee. One financial aid expert, though, said that change may not have a great effect.

Mark Kantrowitz, president of MK Consulting Inc. and publisher of the FinAid.org and FastWeb.com Web sites, said changes would cut just one page from the FAFSA.

Kantrowitz said the FASFA takes more than an hour for many families to complete and the change would take off only 10 minutes – meaning there is still room for improvement and simplification.

“In order to have a meaningful impact, we have to get the FAFSA down to a page,” he said.

In addition, Kantrowitz said the legislation would hurt the private lenders no longer receiving subsidies from the government.

“It is devastating for the student loan industry,” he said.

For now, the University, students, parents and lenders must all wait and see how the student aid bill fares in the Senate.

“The truth is going forward until we know what legislation is passed by Congress and the regulations contained therein it would be only speculation as to what positive or negative effect Direct Lending would have on colleges and their students,” Chernak said.

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