Here is a fact sheet: Download Final Fact Sheet - Student Aid and Fiscal Responsibility Act
I have listed the highlights of the Act below. It largely follows the original proposal laid out by the Obama Administration in February. Here are the three planks of Higher Education reform as described in that original budget blueprint in February:
- Expand Pell Grants and Puts the Program on Solid Footing
- Stabilizes the Student Loan Program for Students and Saves Billions of dollars for Taxpayers
- Focuses on College Completion
The Act not only focuses on these three points but also adds additional programs to it. First, the core program:
- Pell Grants: Pell Grants to increase by $40 billion over the next ten years; increasing to $5,550 in 2010 and $6,900 by 2019. This will not be the full entitlement as originally proposed given cost considerations.
- For context, according to the College Board in 2007-08, $14.4 billion of Pell Grants were awarded.
- College Access and Completion programs: $2.5 billion over five years available to "fund innovative programs at states and institutions that focus on increasing financial literacy and helping retain and graduate students."
- The inclusion of institutions would seem to indicate that schools will be able to apply for grants in this area.
- Perkins Loan program: No dollar figures were provided in the fact sheet, but the proposal had been to expand the program to $6 billion from $1 billion today. A staffer from the House Committee on Education and Labor indicated that legislators were eager to work with the financial aid community on a compromise solution to the interest-rate subsidy issue, which would be discontinued in the bill due to its cost.
- FAFSA simplification: Will build upon recent announcements from the Dept. of Education which would reduce the number of questions while also allowing families to use IRS data to pre-populate forms.
- Direct Loan origination: All new federal loans would be originated through the Direct Lending platform (Common Origination and Disbursement) beginning July 1, 2010
- The Department of Education has been highlighting the efficiency of this approach as compared to the Student Loan Community proposal, which they say would have resulted in $15 billion less in savings.
- Under the current ECASLA program, about 50% of FFEL loans have been funded by the federal government according to Department figures. With FFEL currently making up 70% of federal student loan volume and DL 30%, that would mean that roughly 60% -65% of federal student loans are currently being funded by the Federal Government.
- Regarding concerns about the tight implementation times for schools, the Department sent a letter to college presidents last week of the efforts that they are taking to ensure a smooth transition
- Reporting from the NASFAA annual conference, The Chronicle of Higher Education reports that the sessions led by the Department of Education focused on the transition to Direct Lending were oversubscribed.
- The Chronicle also reported on concerns small schools are having about the cost to transition to DL. A House staffer on the Education Committee indicated that they have not seen increases in actual costs with schools that had recently shifted to Direct Lending.
- Direct loan servicing: Competitive bidding process with private servicers who will have their allocations based on borrower service, financial education and default prevention. Importantly, non-profits will have a role in servicing loans.
- In terms of how the recent servicing contract awarded by the Department to the four servicers (AES/PHEAA, Great Lakes, Nelnet and Sallie Mae) fits into this legislation, the Secretary of Education will have authority to have future competitions
- For non-profits, they would have guaranteed base allocations for in-state volume if they are adhering to the price and quality guidelines of the contract
What's new in the Act?
- Interest rates on subsidized federal student loans will become variable rate loans beginning in 2012. Rates on subsidized loans will be at 3.4% in 2011 and were scheduled to increase to 6.8%
- Rate will be based on the 3-month T-bill rate plus a margin of 2.3% with a cap of 6.8%. So, unless interest rates remain at historically low levels, the interest rates on these loans will increase in 2012 with the legislation providing option value if 3-month T-bill rate is below 4.5% in 2012.
- $1.2 billion investment in Historically Black Colleges and Universities and Minority-Serving Institutions
- Competitive grant program for community colleges
- USA Today: $12 billion to "to retrain unemployed workers and prepare the U.S. workforce for an increasingly competitive global economy."
- Support free, high quality, online training, high school and college courses
- Did you know that MIT currently offers lecture notes, tests and videos online for free? Check out MIT OPEN Courseware!
- Creates Early Learning Challenge Grant to states that implement standards-based birth-to-five early learning system.
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