Federal need-based aid to increase
President George W. Bush is poised to sign legislation that recommits the federal government to keeping higher education affordable and accessible through meaningful improvements in need-based aid.
Already passed by Democratic majorities in Congress, the "College Cost Reduction and Access Act" is the major budget authorization legislation to guide federal financial aid expenditures for the next five years. The most significant elements of this bill authorize a $1,000 increase in maximum Pell grants, which are to be phased in over the next five fiscal years. If fully funded, by 2012 the maximum Pell would increase from $4,310 to $5,400, which would be especially helpful for low-income students.
If our nation and state are to have the educated citizenry to staff our economy and to make informed democratic decisions in an increasingly competitive global context, increased need-based aid for low- and middle-income students will be a necessary element of increasing their participation and success in higher education.
It is important to realize, however, how much catch-up the federal government needs to do when it comes to need-based aid. Over the last 15 years, Minnesota college students have seen the share of their financial aid coming from federal grants dropping from 24 to 11 percent. In 1975 the Pell Grant covered 78 percent of tuition, fees and room and board at a public four-year institution. To achieve this level of coverage today, the maximum Pell would be $9,981.
Other positive elements of the Act include:
- Lowering interest rates on federally subsidized student loans from 6.8 percent to 3.4 percent by 2011;
- Capping monthly federal loan repayments to 15 percent of students’ discretionary income, starting July 2009;
- Creating a loan-forgiveness program for graduates who work for 10 years in several public service professions, including public safety, emergency management, child care and others; and
- Offering new grants of up to $16,000 for qualifying students who will teach high-demand subjects at at-risk schools for at least four years.
Taken together, these changes are expected to have a $20 billion price tag. The increases for Pell and a number of other related programmatic initiatives will be paid for by a corresponding reduction in subsidies to federal student loan lenders. The impact of these cuts in subsidies is not yet clear; lenders are claiming that they will be forced to reduce some discounting practices that will result in higher costs for students.
Meanwhile, many observers may not realize that law-making tied to higher education continues on other fronts. The second stage is the reauthorization of the Higher Education Act for a five year period. The Senate has completed its initial action on reauthorization and is waiting for the House to complete its work this fall. Once both houses have acted, reaching a compromise between the two approaches should occur expeditiously. The reauthorization bills will contain programmatic and regulatory authorizations and this year will include some responses to student loan irregularities and external demands for focusing more attention on the imputed results of a college education.
The third stage of the process is the direct appropriations process for the fiscal year, which begins on October 1. Both the Senate and the House have developed proposals consistent with the budget authorization legislation, but the administration is threatening to veto their actions, which would call for spending levels above the original White House proposals. Failure to reach agreement on the appropriation will threaten the increases authorized by the budget legislation.