In an effort to battle escalating college tuition costs and increasing student debt, the House of Representatives approved the College Cost Reduction Act of 2007 July 11, revamping the structure of federal student financial aid.
The bill will cut $19 billion in federal subsidies to student lenders over five years. The savings would subsequently be used to reduce the interest rate on federally subsidized student loans by half, from 6.8 percent to 3.4 percent, while increasing the maximum federal Pell grant from $4,310 to $5,300 by the 2013-14 academic year.
Pell grants, the major form of government assistance for low- to middle-income families, distinguish themselves from loans, in that they do not need to be repaid. Although families making below $50,000 a year are eligible for the grants, the majority are awarded to students with family incomes under $20,000.
In addition to raising the maximum Pell grant, the bill will also allow year-round grants. "We will expect the average Pell to increase, and more students to be eligible," said Penn senior Director of Financial Aid, William Schilling.
The bill passed by a vote of 273-149, with 47 Republications voting with Democrats. Advertised as a major investment for helping low- to middle-income families with college tuition, Democrats hailed the bill as the "single largest effort to help students pay for college since the G.I. Bill," passed in 1944 to assist students with college tuition in exchange for military service.
"That took us to the first place in the world, and we've been there for 50 years," Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee and author of the legislation told The New York Times. "This is about a new investment for the next generation."
About 40 percent of undergraduates at Penn receive university grand aid, and it's estimated that 1,000 undergraduate students are recipients of a Pell grant at Penn.
Lenders are vigorously lobbying against the bill, fearing that the reduction in government subsidies would substantially hurt their profits, with some smaller firms fearing that they may be driven to bankruptcy.
With many students also turning to private unsubsidized loans, the government hopes the reduced interest rates will attract more students to federal loans.
Because of the reduced profits for the lenders, many may need to scale back on the benefits offered to borrowers as an incentive for choosing their firm. Many firms offer reductions in interest rate to attempt to attract potential students.
Under the bill, the limit on the Stafford Loan, a federally subsidized loan that's not neeed-based, would rise from $5,500 to $7,500 for current juniors and seniors.
The bill also encourages students to pursue public service careers by including loan forgiveness program for first responders, firefighters, law enforcement officers, nurses, prosecutors, early childhood educators and librarians.
Schilling said this provision might be useful for some Penn alumni, as it would attract them to the pubic service sector in exchange for loan forgiveness.
Schilling noted that "There are lots of good things that would get done" under the bill. He did not see any significant concerns about the bill in its current form.
Despite the passing of the bill, Democrats and Republicans faced heated arguments over the bill's measures. Among the center of the debate was the claim from Republicans that Democrats appropriated too much of the $19 billion cut from lenders to reducing the interest rate on loans and too little directly towards raising Pell grants.
President Bush is expected to veto the bill in current form. The bill "does little to benefit America's neediest students and essentially diverts a majority of savings in the bill to individuals out of school rather than focusing on aiding low-income students in school," U.S. Secretary of Education Margaret Spellings said in a statement.
