CONGRESS PASSES STUDENT AID OVERHAUL + HOW TO BEAT THE HIGH COST OF LEARNING

Susan Walsh / AP
Senate Majority Leader Harry Reid (D-Nev.), left, confers with Edward M. Kennedy (D-Mass.), who heads the Senate Education Committee. Kennedy co-sponsored the measure.

CONGRESS PASSES STUDENT AID OVERHAUL: The plan would boost financial aid to students, reduce interest payments on their loans and slash subsidies to lenders.

By Nicole Gaouette, Los Angeles Times Staff Writer

September 8, 2007 - WASHINGTON -- -- Congress on Friday approved the largest overhaul of education funding in more than 60 years, a $20.9-billion program that would boost financial aid to students and reduce interest payments on their loans.

Students who enter certain public sector jobs would have their debts erased under the plan, the total cost of which would be offset by slashing government subsidies to lenders. It also calls for a $510-million investment in minority colleges.

The program would have particular impact in California, which has more recipients of low-income student grants than any other state. The bill's increases to those Pell Grants are expected to benefit about 5.5 million needy students nationwide.

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 that the bill would drive smaller financiers out of business, leaving students with fewer and less attractive loan options. Republicans argued that 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 would sign it into law.

Passage of the College Cost Reduction and Access Act comes at a time when college costs have soared nearly 40% in the last 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 last year's midterm election focused on the issue, with now-House Speaker Nancy Pelosi (D-San Francisco) declaring that cutting student loan interest rates in half would be one of her party's top priorities.

On Friday, one of the bill's sponsors, Rep. George Miller (D-Martinez), 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 [billion] to $30 billion blow out the door."

Gabriel Pendas, president of the United States Student Assn., 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 expected to "be paying my whole life," said Congress needed to tackle the underlying problem: rising tuition. "A lot of folks are being priced out of college," he said.

The bill would halve interest rates for students starting July 1, from a current 6.8% to 3.4% phased in over four years. Those rates would reverse an increase enacted by the previous Republican-led Congress to fund tax cuts. The lower rates would expire after five years unless Congress renewed them.

At the beginning of the 2008-09 academic year, the bill would begin increasing the maximum Pell Grant from $4,310 to $5,400 by 2012. In the 2005-06 school year, 584,580 California students received those grants.

Students with direct loans from the government would receive debt forgiveness after 10 years of working in certain public sectors, including emergency first-responders, nurses, firefighters, prosecutors, early-childhood educators and librarians. That provision would take effect July 1.

Undergraduates who committed to teaching in high-need public schools would receive upfront tuition assistance of $4,000 a year, up to $16,000, starting from the 2008-09 academic year.

From July 1, 2009, onward, the bill would also cap students' monthly federal loan repayments to 15% of what the government considers their discretionary income.

It also would funnel $285 million toward Upward Bound, a program that prepares students who are in financial need or whose parents did not receive higher education to go to college.

Patrick Callan, president of the National Center for Public Policy and Higher Education in San Jose, described the bill as a "response to the large, building public anxiety about the cost of college."

He said that since the early 1980s, family income increased 170%, inflation rose 95%, the cost of healthcare climbed 225%, and the price of a college education soared 375%.

"This bill restores the principle of educational opportunity without having it depend on your financial resources," Callan said. He noted that the bill particularly helps states like California, with a rising generation of elementary-school children who are "heavily low-income, first-generation students."

Jamie Merisotis, president of the Institute for Higher Education Policy in Washington, praised the investment in institutions serving black, Latino and Native American students. "That will be a big help, given the demographic trajectory of the country," he said.

Miller and his co-sponsor, Sen. Edward M. Kennedy (D-Mass.), who lead their chambers' education committees, stressed that the bill's programs would be fully covered by the $20.9 billion in cuts to lender subsidies over five years.

Those cuts target the subsidies loan companies receive from the government for lending to students. The subsidies are meant to offer some security for extending loans to students who have no income, sometimes no co-signer and usually no collateral.

A few lenders, including SLM Corp., known as Sallie Mae; Student Loan Corp.; and Nelnet Inc. dominate the industry, but more than 3,500 lenders provide, service and finance federally guaranteed student loans.

Kevin Bruns, executive director of America's Student Loan Providers, argues that by shaving the subsidy for for-profit firms by 0.55%, the bill narrows lender profits to the point that they would have no return. He predicted that smaller lenders would shut their doors, while larger lenders would take over, leading to fewer choices.

"Six million borrowers will feel that," Bruns said. "The taxpayers are going to hurt."

ADDITIONAL STORIES: How to Beat the High Cost of Learning

A hard test in college finances by Kathy M. Kristof | September 9, 2007 | She wrote the book on saving for school, but touring campuses with her daughter was an eye-opener.

A playbook for athletes seeking scholarships by Kathy M. Kristof | September 9, 2007 | Paying for college can feel like a high-wire act as a family tries to keep its budget balanced.

A host of factors determine how much aid you can get by Kathy M. Kristof | September 9, 2007 | Will your child qualify for financial aid at college? Most parents haven't a clue.

Coming Sunday In LA Times Business: One parent's financial dilemma - Stick to the budget, or shell out for a private college?