How New Legislation Could Ease College Costs

A measure that can make college dramatically more affordable at no new cost to taxpayers should become law in coming weeks. The Student Aid and Fiscal Responsibility Act (SAFRA) will generate almost $90 billion in savings over the next 10 years to boost Pell Grant scholarships, control interest rates on federal loans and retool the financial aid system for families. It represents the greatest investment in federal student aid in history.

Here’s the backstory. The SAFRA replaces the benighted federally-guaranteed student loan program (FFELP) with 100 percentdirect lending from the U.S. Department of Education. “This eliminates the middleman. It also simplifies the tax system and expands the Perkins loan program from $1.5 billion to $6 billion a year,” explains Mark Kantrowitz, founder of the financial aid website FinAid.org. Changes would be effective in the coming academic year.

Unlike the lender-based program, the Direct Loan program is insulated from market swings and can therefore guarantee students access to low-cost federal college loans. As credit has tightened, some lenders have gotten out of the student loan business. This makes the federal move politically popular and fiscally reassuring.

However, there is some concern about the legislation. “My main concern is that the legislation will still be subject to the annual appropriations process and it is likely that Congress will cut funding in the next few years,” says Kantrowitz.

Furthermore, he says the Perkins loan proposal is a bit complicated and that it might be better to repeal the Perkins loan and replace it with higher unsubsidized Stafford loan limits.

Then too, says Michael Clifford, an educational expert with the SignificantFederation recruitment firm, the big lenders provided the schools, students and other payors like parents or corporations with great customer service hat this group may not get when dealing with only one school. So does this mean it’s a good time to go back to school? “It’s absolutely the best time to get back in school, especially for working adults who face lay offs or risk of the same. Companies like employees that are improving their skills,” says Clifford.

The stimulus bill passed earlier this year added money for student aid (increasing the Pell Grants by $690 to $5,340) and expanded the Hope Scholarship tax credit from $1,800 to $2,500, making college more affordable. And it’s needed. According to Kantrowitz, the number of people applying for financial aid has increased about 20 percent over last year.

That’s math anybody can appreciate.

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