How a federal financial aid overhaul could affect 'U' students

BY NICOLE ABER
Daily Staff Reporter
Published September 24, 2009

While state funding for higher education continues to be slashed because of the state's budget deficit, students may see a glimmer of hope with a possible increase in federal financial aid for the next academic year.

The Student Aid and Fiscal Responsibility Act of 2009 — a bill passed by the U.S. House of Representatives last week — would eliminate government subsidies for private loans and instead put the loans in the government's hands, effectively cutting out the lending industry as a middle man.

By eliminating the tax subsidies for private lenders, government officials say they could save $87 billion over the next 10 years, with only $7 billion in new costs. These savings would then be used to increase funding for higher education, including a boost in money available for Pell Grants.

So what do these changes mean for University of Michigan students?

Although the bill has been praised as a historic overhaul of financial aid, there won’t be many changes in how the University conducts its financial aid operations, said Pamela Fowler, executive financial aid director.

According to Fowler, 9,769 undergraduates and 4,080 graduate students at the University took direct loans through the subsidized and unsubsidized programs for the 2008-2009 academic year.

Though many students wouldn’t see a significant change in the way they receive their funds, students would be affected by an increase in funding for Pell Grants, which will be indexed to the rate of inflation plus one percent if the bill is signed into law.

The bill would also increase the maximum amount for Pell Grants to $5,500 in 2010 and to $6,900 by 2019. Fowler said 3,400 University students received Pell Grants totaling over $11 million during the 2008-2009 academic year.

Cindy Bank, assistant director of the University’s government relations office in Washington D.C., said this increase would boost the amount of money available for all students receiving the grants.

This Pell Grant increase is essential as the cost of college tuition continues to rise, U.S. Rep. John Dingell (D–Mich.) wrote in a press release.

“We have all watched the tuition at public and private colleges double, then triple as time has passed, creating a burdensome gap for our students to overcome,” Dingell wrote. “The students of this country are our greatest hope … To not ensure that they have an affordable, quality education would be to shortchange their success and the success of our country.”

Mark Kantrowitz, publisher of Finaid.org, an educational website on financial aid options, said although University students will not be directly affected by switching from private lenders to direct loans, they will feel the effects of other provisions of the bill, like the simplification of the Free Application for Federal Student Aid form.

As part of the changes to the FAFSA form — which determines how much of a student’s education costs their family is expected to contribute — many questions about assets and tax income will be eliminated, which will allow some students to be eligible for more aid.

“The benefit of getting rid of the asset questions means there will no longer be any factual or perceived penalty for saving for college or saving for any other purpose for that matter,” Kantrowitz said.

The bill also includes an expansion of Federal Perkins Loan Program from $1.5 billion per year to $6 billion per year.

Kantrowitz said additional funds would be available for Perkins Loans because the program will shift from a private program to a loan program.

Fowler said 3,403 undergraduates and 1,531 graduate students at the University participated in the Perkins Loan Program for the 2008-2009 academic year, totaling more than $8 million.

The Senate version of the bill contains the same language as the House bill regarding the Pell Grants, said Bank, who expects this would likely result in the increase in Pell Grants from the legislation.

But Bank does not know what other provisions the Senate bill, which is expected to be released this week, contains.

U.S. Sen. Debbie Stabenow (D–Mich.), who is in support of many of the provisions in the House bill, wrote in an e-mail statement that the Senate Committee Health, Education, Labor and Pensions is still working on the Senate version of the legislation.

“I have been a long time proponent of increasing Pell Grant funding, expanding Perkins Loan criteria and reforming loan repayment standards, and will continue to follow the progress of this legislation in the Senate,” Stabenow wrote.

As part of the House bill, changes would go into effect in July 2010. Eligible students would then see a change in their financial aid packages for the 2010-2011 academic year, Fowler said.