Pell Grants Increase While Lender Subsidies Decrease
On Friday June 20, the Senate approved the Higher Education Access Act of 2007 by
a vote of 78-18. The bill, if approved by the House, would increase Pell Grant eligibility
and lower government subsidies to outside lenders. The House passed a similar proposal—the
College Reduction Act of 2007—in June, making a compromise on both versions likely.
The overarching theme of the bill was an increase in government aid to students
and, at the same time, a decrease in aid provided to student lenders.
Lowered subsidies would likely result in increased interest rates for those who
take out student loans from lenders outside of the government. Government student
loans offer the best interest rates, but such loans also have smaller borrowing
limits. Many students end up looking to lenders subsidized by the government for
additional aid. While interest rates on subsidized loans are not as favorable as
those offered by the government, they are still more favorable than those offered
by private, unsubsidized lenders.
According to MarketWatch, the new bill could save the government up to $15.4 billion
by 2012. The bill’s sponsor, Senator Edward Kennedy, D-Mass, was enthusiastic about
the approval stating, "The passage of the Higher Education Access Act tonight was
a victory not only for students and their families, but for the American people.
With this new congress we made education a national priority again, and we’ve given
the next generation the tools they need to compete in the global economy."
The bill also addressed concerns that lender subsidy cuts would lead to increased
interest rates on non-government loans. Thankfully, cuts on outside lender subsidies
were also accompanied by increased caps on government loans as well as by increased
laxity on government loan eligibility requirements. These changes are likely to
benefit students who don’t borrow much. For those with financial needs that cannot
be fulfilled government aid, effects will depend on just how much more the government
is willing to lend and on how much outside lenders will choose to charge after cuts.
Most students have a lot to cheer about. The biggest perk of the Higher Education
Access Act is its proposal to increase government grant offers. Free money is the
best kind. Like scholarships, college grants provide students with aid that need
not be repaid. If the bill is enacted, the government would increase the Pell Grant
limit to a maximum $5,100. It would also alter the formula used to determine grant
eligibility in a way that would lessen restrictions on the gravity of financial
circumstances required for grant reception.
Additional bill provisions include loan forgiveness options for borrowers who work
in areas of public service for ten years, a cap on monthly loan payments required
of students, and the establishment of a program that would increase competition
between lenders. If the bill passes, the enactment may be expected within the next