Legislation Brings More Federal Aid to Students
June 25, 2011
Published: October 8, 2009
On Sept. 17 the House of Representatives passed the Student Aid and Fiscal Responsibility Act (SAFRA), which includes legislation to increase federal aid for students and federal funding for higher education.
The bill aims to improve the federal student loan system and to make college education more accessible to Americans.
“By 2020, America will once again have the highest proportion of college graduates in the world. We used to be number one. We should be number one again,” said President Barack Obama, who endorsed the bill, in a Sept. 21 speech on education reform.
Part of Obama’s efforts in the SAFRA bill is the simplification of the Free Application for Federal Student Aid (FAFSA). Though these changes in the FAFSA will not begin until the 2011-2012 academic year, SAFRA legislation will eliminate assets from the list of data elements and the need analysis formula. It will also drop 12 questions from the definition of untaxed income and benefits, including questions on child support, worker’s compensation and veteran’s benefits. Without these questions, the FAFSA will be easier to complete and hopefully encourage more students to apply for federal assistance.
Angela Van Dekker, assistant vice president of Student Financial Services, said, “The amount of aid would increase; if it makes it easier to file then more students might complete the process. Aid will still be based on the family situation and the majority of the data elements will remain the same. Part of the simplification is slated to be a direct check with the IRS. For those who have had difficulty providing accurate information, it may cut down time needed to file.”
In addition to easing the FAFSA process, SAFRA aims to increase the amount of federal grant money given to students. Forty billion dollars in the bill’s budget will be dedicated to increasing the federal Pell Grant starting in 2011, in proportion with the annual shift in the Consumer Price Index. This formula will bring the Pell Grant from the 2009 amount of $5,350 to $6,900 in 2019.
Under the present system, interest rates on Stafford Loans are scheduled to increase from 3.4 percent to 6.8 percent starting in July 2012. SAFRA legislation will change this policy so that interest rates will instead increase variably, capping at 6.8 percent. In addition, re-engineering of the Perkins Loan system will provide more reliable forms of credit from the federal government and expansion of Perkins Loans to more college campuses.
A key part of the SAFRA bill focuses on changing the lending process of such federal loans. Under the current program—the Federal Family Education Loan Program—the federal government uses taxpayer money not only to subsidize but also to guarantee student loans through private lenders, protecting private lenders against default. SAFRA proposes a complete shift to federal loans being distributed through the Direct Loan program that is already employed in campuses such as Johns Hopkins and Penn State. The Direct Loan program will guarantee access to low-interest student loans straight from the federal government, regardless of the economy. Fordham University participates in the Family Federal Education Loan Program, but students that have transferred from the Marymount weekend college to the Fordham College of Liberal Studies Westchester campus participate in the Direct Loan program.
When asked about any potential drawbacks in Fordham University switching to the Direct Loan program, Van Dekker said, “One of the drawbacks is only having one loan program. If the federal government were able to handle the volume of all schools moving to direct loans, there would still be a monopoly. Students of economics know the effects of a monopoly. One of the original benefits of the creation of the direct loan program was to create competition. It improved customer service and benefits for students. Still later, the Direct Loan program had to improve its processes and service in order to compete with FFELP because most schools were not moving to direct loans. Will there still be the impetus to improve the programs and customer service in the absence of competition?”
“The transition to direct loans will possibly be a difficult one in that, up to now, whatever direct loans we have processed have had to be processed mostly manually. There is a significant need to improve software and reporting, and decrease manual processing. However, one of the benefits of one loan program might be that there are less players involved in the process,” Van Dekker said.
When asked if this new legislation would impact the amount of aid that Fordham University would give to students, she said, “We always take the cost of attendance, the student’s need and all the resources into consideration. This will not change with the new rules. Aid is still limited to financial need which is the cost of attendance minus the family contribution, and minus all available resources.”
Christina Iannacone, FCLC ’12 said of the switch to the Direct Loan program, “I think it’s safer to take it from a private lender, to be honest, just in case the money from the government doesn’t go through. As long as the money’s secure and I wouldn’t have to worry about taking an additional loan, and if the government can maintain the amount of loan I need, then I wouldn’t have a problem with it.”
Alexander Mitchell, FCLC ’12, is more skeptical. “I think it’s a positive change because it will help a lot of the middle class, but the key unknown is the implementation. Depending on how it’s implemented it could be a really good plan or just another attempt by a liberal administration to give more government control where it isn’t necessary. The only thing I’m skeptical about is whether they’re doing this to benefit the students or benefit the federal government. I think it has a lot of potential to be a positive program but I don’t think we should be sucked in by rhetoric and we need to find out where this money is coming from,” he said.
Another stipulation of the SAFRA bill is the establishment of more on-campus financial literacy programs. Fordham University has so far sponsored events such as “How to Choose a Credit Card,” “Ultimate Money Skills Including Budgeting,” “Financial Transition from College to Work,” “The ABC’s of Credit—How to Manage Your Credit,” “How to Select Appropriate Financing Options,” “Managing Your Loan Repayment,” and others. They have been held at all three Fordham University campuses, but despite enticements such as raffles and free food, attendance was still very low.
SAFRA legislation, apart from student aid assistance and financial literacy, also focuses heavily on community colleges by providing funding for facility renovation and the establishment of job training programs. It will invest $2.55 billion in historically black colleges and universities and minority-serving institutions to retain students and ensure that they graduate. SAFRA also provides funding to improve learning standards in pre-kindergarten programs and energy-efficient renovation in public school districts. The bill containing SAFRA entered the Senate on Sept. 20, and is expected to pass in coming weeks.