Congress is giving student aid a facelift this fall – or at least voting on it.
On Sept. 17, the House passed the Student Aid and Fiscal Responsibility Act with a majority vote. The act has yet to make it through the Senate.
The Student Aid and Fiscal Responsibility Act would change the process by which money for loans and grants is directed within higher education. Essentially, the behind-the-scenes logistics of student aid would change.
The biggest modification planned for student loans is the elimination of bank programs. The new system plans to only have direct transfers to students, which will eliminate the bank middleman.
“[SAFRA] takes $87 billion from bank loan programs that have programs that go to students and [instead] directly stems that money to students,” said Sandy Ginsburg, Committee for Education Funding intern.
The proposed act aims to give more money to Pell grant recipients, but would not increase the number of recipients. Also, increased access to the Perkins loan program or an equivalent program would eliminate conflicts between private lenders and colleges.
The act also includes plans for a shorter, simpler Free Application for Federal Student Aid, in the hope of make applying for financial aid less of a burden. It also would initiate new college completion programs to prepare students for employment.
Legislative Analyst’s Office Principle Analyst Judith Heiman said she does not believe UC and UC Davis students will fully feel most of the proposed changes. Pell grant recipients will notice more money, but the amount to increase the grants hasn’t reached agreement in the Senate, she said.
“I think a lot of students don’t know if [their loans] are from banks or direct loans,” Heiman said.
Under SAFRA, student would know their money is coming directly to them.
Carolyn Henrich, legislative director at the office of federal government relations at the University of California Office of the President, said there are still many parts of the act that the House left undefined that are under debate. Primarily, SAFRA proposes an institution to match the Perkins loan program.
“Some people have concerns about certain language in the bill – such as [in] the Perkins loan,” Henrich said.
When the act goes through Senate, more negotiations and changes will be made to SAFRA.
These student aid proposals are currently in Congress because the current administration views student loans as an important issue within higher education, Henrich said.
“The administration has made pretty clear since Obama was elected that they wanted to stop paying money to banks but to students,” Henrich said.
In this case, the banks are the main opposition.
“The banks are very unhappy because [student loans] are their business,” Henrich said. “They make a lot of money off students‘ loans.“
Sallie Mae, one of the leading lenders to students, is fairly cooperative with the proposed changes. Officials with the federal loan program said they agree with many of the motives behind the changes.
In a state-wide conference call, Sallie Mae Vice Chairman and Chief Financial Officer Jack Remondi said Sallie Mae agrees with the proposed changes, except for one key component: the elimination of competition between service providers or loaners.
“[There is] one area of disagreement. Congress will decide to eliminate the ability of schools to pick their service providers in favor of having the Department of Education determine that for you,” Remondi said. “Everything else we agree on.“
Without competition, Sallie Mae is concerned students will be getting the short end of the loan-stick.
“By preserving competition and choice in loan delivery, the [proposal] insures that innovation, customer focus and value in loan origination and default prevention will continue,” Remondi said.
SASHA LEKACH can be reached at firstname.lastname@example.org.