WASHINGTON – Congress on Friday approved the largest overhaul of education funding in 60 years, slashing subsidies to lenders by $20.9 billion over five years and redirecting the funds to boost financial aid to students and reduce interest payments on their loans.
The bill would offer debt forgiveness for students who enter certain public sector jobs and invest $510 million in minority colleges.
Democrats hailed the legislation, describing it as the largest college aid package since the 1944 GI Bill and a boon to families at a time of skyrocketing college costs. But lenders warned the bill would drive smaller financiers out of business, leaving students with fewer and less-attractive loan options. And Republicans claimed it would burden taxpayers with costly new entitlement programs.
Despite GOP opposition, President Bush indicated Thursday that he would rescind an earlier threat to veto the bill and sign it into law.
Passage of the College Cost Reduction and Access Act comes at a time when college costs have soared nearly 40 percent in the past five years. It also coincides with increased scrutiny of the $85 billion student-loan industry, which has been shaken by recent scandals involving conflicts of interest among lenders and school officials, as well as kickback schemes.
Democrats campaigning to retake control of Congress in January focused on the issue, with House Speaker Nancy Pelosi, D-Calif., declaring that cutting student loan interest rates in half would be a priority.
On Friday, one of the bill’s sponsors, Rep. George Miller, D-Calif., described the bill’s passage as a victory for middle-class families. “This bill takes extraordinary steps to bring urgently needed financial relief to students and families who are working very hard to pay for college,” he said.
The leading Republican on the House Budget Committee, Rep. Paul D. Ryan of Wisconsin, said Democrats were not being upfront about the bill’s cost to taxpayers.
“This is a cynical attempt to make good on a campaign promise,” Ryan said, predicting the interest rate cuts, now temporary, would be extended. If that happens, Ryan said, over 10 years “We’ll see another 20 to $30 billion blow out the door.”
Gabriel Pendas, president of the United States Student Association, which represents 1.3 million students, called the bill a “good first effort.” Pendas, who graduated last year from Florida State University with a degree in physics and $45,000 in debt that he expects to be “paying my whole life,” said Congress needs to tackle the underlying problem: rising tuition.
The bill would halve interest rates for students starting July 1, from a current 6.8 percent to 3.4 percent phased in over four years. Those rates reverse an increase that the previous Republican-led Congress allowed as a way to fund tax cuts. The lower rates would expire after five years unless Congress renews them.
At the beginning of the 2008-2009 academic year, the bill would begin increasing the maximum Pell Grant from $4,300 to $5,400 by 2012.
Students with direct loans from the government would receive debt forgiveness after 10 years of work in certain public sectors, including emergency first-responders, nurses, firefighters, prosecutors, early childhood educators and librarians. That provision takes effect July 1. Undergraduates who commit to teaching in high-need public schools would receive upfront tuition assistance of $4,000 a year, to as much as $16,000, starting from the 2008-2009 academic year.
From July 1, 2009, onward, the bill would cap students’ monthly federal loan repayments to 15 percent of what the government determines to be their discretionary income.