New law brings loan, grant relief

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Millions of Americans struggling with ever-rising college costs should get some relief this year from a law touted by its creators as the biggest single infusion of financial aid since the GI Bill.

The College Cost Reduction and Access Act of 2007, a $20-billion package that includes grant increases and loan rate reductions, was passed by Congress and signed into law by President Bush in September.

It contains provisions to rein in spiraling student debt and to encourage young Americans, who now shy away from lower-paying public service fields, to rethink their career plans.

The law is an attempt to address a big worry: that college is slipping beyond reach of low- and middle-income families.

To that end, the maximum award for the need-based Pell Grant, funded at $4,241 for 2008-2009, will increase by $1,090 the next five years to a maximum of $5,331 by 2012.

About 5.2 million students received a Pell Scholarship last school year. And 74 percent of Pell recipients had family incomes below $30,000, according to the Congressional Research Service.

Interest rates on the need-based, subsidized federal Stafford Loans, meanwhile, are being lowered in yearly steps from the current 6.8 percent to 3.4 percent by 2011.

"For far too long, college costs have grown faster than families' ability to pay them," said U.S. Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee and author of the House legislation. "With this law, we are saying help is on the way for millions of low- and middle-income students and their families."

The legislation, introduced in the U.S. Senate by Sen. Edward Kennedy, D-Mass., will not require new taxes because it is funded by cuts in subsidies to private lenders, congressional aides say. Some critics, including advocates for those lenders, have warned the law would harm loan providers, and by extension, the students who rely on them for college aid.

But backers, evoking memories of how the GI Bill enabled millions of World War II veterans to attend college, say the nation's future is at stake because too many qualified adults are being denied a degree for no reason other than cost. And those who make it through are increasingly finding themselves unable to get out from under the crush of student debt.

Parts of the act, therefore, are aimed at providing graduates ways to reduce, or even eliminate, those unwieldy payments.

Under the law's "income-based repayment" section, which takes effect in July 2009, participants in the federal loan program can sign up to limit their loan repayment to no more than 15 percent of discretionary income, or 15 percent of the amount that a borrower's adjusted gross income exceeds 150 percent of the poverty line (which is above $15,315 for a single-person household).

Borrowers would be eligible to have the remainder of their loan forgiven after 25 years, but this will be treated as taxable income.

Another aspect of the act targets students who now shun a career in public service out of fear they will remain buried in student debt. Specifically, the act offers loan forgiveness after 10 years of work in "public service" jobs, such as military service, emergency management, public health, law enforcement, prosecutors, public defenders, early childhood educators and librarians.

In addition, qualified individuals willing to serve at least four years as public school teachers in high-need subjects and in high poverty communities can receive, starting in 2008-2009, upfront undergraduate tuition aid of as much as $4,000 per year for four years.

Up to $8,000 is available to those teachers for graduate study, or $4,000 per year, according to data provided by the House Education and Labor Committee.

The grant is intended to make it easier for schools, including those in high-poverty areas, to find qualified instructors in math, science, special education, bilingual education and other areas designated by appropriate agencies as high-demand fields.

Nationwide, roughly 6.8 million students have subsidized Stafford loans. According to a government estimate, the typical borrower -- with $13,800 in need-based federal student loan debt -- would realize savings of $4,400 over the life of the loan once the interest rate cut is fully implemented.

The subsidized Stafford Loan interest rate reduction would be phased in over the next four years, dropping gradually from 6 percent July 1 this year; to 5.6 percent on July 1, 2009; to 4.5 percent on July 1, 2010; and to 3.4 percent on July 1, 2011.

The College Cost Reduction and Access Act also:

• Ensures that students from families with incomes below $30,000 will receive the maximum Pell grant; the cutoff previously was $20,000.

• Eliminates the tuition sensitivity language in the Higher Education Act that has stopped students at low-cost institutions from getting their full Pell grant.

• Increases the income protection allowance for students who are dependent, independent or married, and students who have dependents other than spouses.

• Removes certain forms of aid, including Social Security and Temporary Assistance for Needy Families, from the income totals that are considered available to families to pay for college.

• Directs hundreds of millions of dollars to assist minority-serving institutions and provides funding to Upward Bound, a program that works to boost high school completion and college enrollment among low-income and first-generation students.

The act, with its reduced government loan rates, was passed amid investigations by state attorney generals and Congress that found cozy relationships between private lenders and a number of campus financial aid officers. In some cases, those officers were alleged to have accepted money, gifts or travel.

In addition to the act, guidelines announced last fall by U.S. Department of Education Secretary Margaret Spellings will also impact student loan activity. Her agency's rules are intended to guarantee transparency in the student loan process and safeguard borrower choice.

Along with a requirement that colleges choosing to have preferred lender lists include no fewer than three firms on them, the department's guidelines compel schools to spell out the criteria used in picking firms.

Lenders may not get on lists by providing payments, gifts or benefits to institutions, their employees or affiliated organizations, according to the agency's guidelines.

Still more possible relief would come from the Higher Education Reauthorization Act, which is working its way through Congress and on Thursday was approved by the House.

The omnibus measure contains a range of provisions including those to curb tuition increases, make textbook costs more manageable, expand Pell Grant awards to summer study and simplify the federal application for student aid.

A version passed the Senate in July, and in the weeks ahead a conference committee of House and Senate members will reconcile differences in the bills to prepare for final Congressional passage.

"Making college more accessible to all Americans is fundamental to maintaining our competitive edge in the global economy," said U.S. Rep. Jason Altmire, D- McCandless, among those voting for the measure.


Bill Schackner can be reached at bschackner@post-gazette.com or 412-263-1977.


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