Saturday, April 10, 2010

What Financial Aid Reform?

Even with its recent passage, the media’s coverage of President Obama’s healthcare reform bill has focused primarily on the heated national debate that it has sparked. While an understanding of the different sides of the argument is important, the attention given to the extreme opposition has left little time to talk about what the bill actually contains. For example, tucked away in the 1,000-page memorandum is the Student Aid and Fiscal Responsibility Act, the largest student loan reform since federal financial aid practices began in 1958, when the National Defense Education Act was passed. SAFRA will have a potentially large impact on kids who plan on attending college and many of them are completely unaware of its existence.

According to the White House, SAFRA promises to make it easier for students to afford their student loans, while also saving American taxpayers $68 billion in the process. One of the biggest changes being made by the bill is the elimination of bank subsidies for student loans. Beginning on July 1, 2010, all new federal student loans will be originated through the Direct Loan program, thereby taking the banks out of federally-backed student loans. This will provide students with access to low-cost federal college loans no matter how the economy is doing, as the Direct Loan program is protected from market swings. The ways in which the loans are paid back will also be changing. Current laws cap student loan payments at 15% of a student’s income after graduation. With SAFRA, those payments will be reduced to a maximum of 10%. Additionally, the government will now forgive a student’s balance after twenty years of on-time loan payments, down from the twenty-five years currently required. For workers in the public sector, including teachers, nurses, and military personnel, debt forgiveness will kick in after ten years of repayment.
 Low and moderate-income families will also benefit from the $40 billion that the federal government will be investing in Pell Grants. The maximum award will increase to $5,550 in 2010 and to $6,900 by 2019. In recent years, there have been over 6 million recipients of Pell Grant scholarships, with that number expected to increase by nearly a million students over the next decade. 

Schools and institutions will also benefit from the new laws created by SAFRA, though some critics argue that the bill does not go far enough. In an effort to “prepare students and workers for 21st century jobs,” a new grant program will be set up to reward universities and community colleges who improve instruction and student support, while schools with primarily minority student bodies will share $2.55 billion in additional funding over the next ten years, which is down from $12 billion suggested by the president in earlier versions of the bill.

By making college more accessible and student loans more affordable, SAFRA will hope to reach President Obama’s goal of producing the more college graduates than any other nation by 2020. Though the legislation has gone under the radar, treated as a mere footnote, the ambitious nature of this bill could help keep America strong as we head further into the 21st century by creating a more skilled and educated workforce.

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