The lawmakers highlighted the benefits today – almost a month and a half early – to increase public awareness as students prepare to graduate college and families work to finalize their financial aid award packages for the coming year.

“With graduation season here and families currently weighing next year’s financial aid packages, it’s critical for students, families and workers to know – right now – that additional relief is on the way,” said U.S. Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee and the author of the law. “Every little bit of help counts in this economy. These benefits will make a serious difference for college students and borrowers working hard to pay for college or pay down their student loan debt.”

“The federal government must help colleges and universities continue to prepare people to enter the work force and ensure that higher-education institutions remain economic engines for their communities and regions,” said U.S. Rep. Tim Bishop (D-NY), a member of the committee and a former college provost. “The dream of a college education is dependent upon access and affordability, both of which should be pillars of our long-term economic recovery plans.”

Of the 1.2 million jobs lost last year, 60 percent were held by workers aged 25 or younger. Their wages may also suffer: Economists have found that workers who graduated during recessions typically earn less over a lifetime than workers who graduate in better economic times. Many borrowers already spend high percentages of their paychecks making student loan payments – and it’s only likely to get worse.

Beginning July 1, for the first time, students and borrowers will be able to participate in a new Income-Based Repayment program that caps their monthly loan payments at just 15 percent of their discretionary income. Any current or future borrower whose loan payments exceed 15 percent of their discretionary income will be eligible. After 25 years in the program, borrowers’ debts will be completely forgiven.

Other benefits include:

• Cheaper interest rates on need-based (subsidized) federal student loans. On July 1, interest rates on these loans will continue to drop, from 6 percent to 5.6 percent. This is the second of four annual cuts in this interest rate; it will continue to drop until it reaches 3.4 percent in 2011. Nationwide, about 5.5 million students take out subsidized student loans each year.

• Higher Pell Grant scholarships for low- and moderate-income students. Due to funding boosts provided by both the College Cost Reduction and Access Act and the American Recovery and Reinvestment Act, the maximum Pell Grant scholarship for the 2009-2010 school year will be $5,350 – more than $600 above last year’s award. About 6 million students receive this scholarship each year.

 
In addition, students and borrowers will be able to continue to take advantage of other recent programs enacted under the law that will make it easier for graduates to go into public service fields while grappling with student debt.

To encourage more students to become teachers, the law provides up-front tuition assistance, known as TEACH Grants, of $4,000 a year – for a maximum of $16,000 – to students who commit to teaching high need subject areas in high need schools for four years after graduation. (These grants first went into effect for the 2008-2009 school year.)

Graduates who enter into public service careers, such as teachers, public defenders and prosecutors, firefighters, nurses, non-profit workers and more, will be eligible for complete loan forgiveness after 10 years of qualifying public service and loan payments. (This program began on October 1, 2007.)

To view a fact sheet on these various benefits, click here.

For more specific information on how the new Income-Based Repayment program will work and who will qualify, click here.

For more information on the College Cost Reduction and Access Act, click here.

For more information on the American Recovery and Reinvestment Act, click here.

“I also applaud President Obama, and Secretaries Duncan and Solis for launching a new user-friendly website to help Americans understand and take advantages of these various student aid benefits. Their proactive leadership will open up new opportunities that will empower students and workers to become part our nation’s recovery.  I look forward to working with them to continue making college more affordable and getting our economy back on track.”

Currently, jobless Americans who receive unemployment benefits cannot keep those benefits if they go to college and receive federal financial aid. President Obama’s proposal will allow these workers to maintain those benefits if they enroll in college. As part of the American Recovery and Reinvestment Act, Congress increased the Pell Grant scholarship to $5,350 for the 2009-2010 school year – an increase of more than $600 its current level.

Under current law, financial aid offers are allowed to use unemployment benefits as proof that a family’s job status has changed, even if their financial aid forms list an old income level, and adjust their student aid award package accordingly.

For more information, visit www.opportunity.gov. 

“This report confirms our fear that many students – coping with a worsening college cost crisis – may be turning to more expensive, risky private student loans before first maximizing cheaper federal student aid they may be eligible for. These loans pose far greater financial dangers to students than federal student loans and have a history of being marketed to students in deceptive and aggressive ways. At a time when Americans are deeply worried about their economic stability, this data is another urgent reminder that we must do everything possible to make students fully aware of and maximize their federal student aid options, which can reduce debt burdens and default rates.

“It also highlights the need to expand the Pell Grant scholarship and make our federal student loan programs more reliable, sustainable and efficient for students, families and taxpayers. In the coming months, our committee will be focused on making college more affordable and accessible by bolstering and stabilizing the Pell Grant scholarship and ensuring that our federal student loan programs operate as intended – in the best interests of Americans families and taxpayers.”

Miller highlighted recent laws enacted by the 110th Congress that will help encourage students to first maximize their federal student loan borrowing options, that will better protect borrowers against confusing and predatory private lending practices, and that will make federal student loans more manageable to repay.

The Higher Education Opportunity Act, which was enacted in August 2008 and begins to take effect for the 2009-2010 school year, will require lenders marketing private college loans to first inform student of their federal borrowing options and ensure that students are treated more fairly when borrowing both federal and private loans by:

• Ensuring that all federal and private student lenders are up-front about borrower benefits and that private lenders follow all ‘Truth in Lending Act’ provisions;
• Prohibiting lenders from issuing private student loans without first obtaining information on a borrower’s enrollment status, cost of attendance, and remaining financial need after available federal student aid.
• Instilling enforceable marketing protections, including disclosures and notifications, to students and institutions by lenders offering private loans.
• Requiring lenders to fully disclose to borrowers the terms and conditions of private loans at three different stages of the loan application process, including during loan marketing and solicitation.
• Prohibiting private loan lenders from charging borrowers fees for paying off their loans early.
• Requiring lenders to give applicants up to 30 days following the approval of a private loan to accept it with no changes in terms or conditions; and
• Granting borrowers up to 3 days to change their minds after private loan consummation.

 
For more information on these protections, click here.

Recently-released federal data also show that student loan defaults rates are on the rise. The College Cost Reduction and Access Act, enacted in September 2007, established an income based repayment program that will make federal loans more manageable to repay by allowing borrowers to cap monthly payments at just 15 percent of their discretionary income. The program will take effect July 1 of this year; any federal student loan borrower is eligible. For more information, click here.

A separate law enacted last spring, the Ensuring Continued Access to Student Loans Act, also increased the federal college loan borrowing limits to help reduce students’ dependence on private loans. For more information, click here.

“Now more than ever, with millions of Americans losing income and jobs in this economy, students and families need reliable, low-cost federal student loans to help pay for college. The House Budget Committee did the right thing for students, families and taxpayers by passing a budget that will give us the opportunity to make our federal student loan programs more reliable and efficient, while saving billions of taxpayer dollars that could be used to further boost college aid and reduce our deficit.

“This is exactly the kind of investment we should be making, at this moment, to turn our country around. In the short term, it will help make sure the economic crisis doesn’t price qualified students out of a college education. In the long term, it will save taxpayers money and make our nation stronger and more competitive. I hope that the House will swiftly pass this budget, so that we can begin working with the Obama administration to make college more affordable and accessible for millions of Americans – at no cost to taxpayers.”  

One student loan reform option that could be explored is President Obama’s proposal to use federal funds to originate all new federal college loans beginning in the 2010 school year. New estimates released last week by the Congressional Budget Office show this proposal will save taxpayers almost $100 billion over ten years – close to a $50 billion increase over previous estimates by the Office of Management and Budget. Specifically, the proposal will save taxpayers $47 billion over 5 years and $94 billion over ten years.

To view the CBO estimate, click here.

For more information on President Obama’s proposal, click here.

“I am thrilled that President Obama has nominated Gaby to be Assistant Education Secretary. Over the past three years, she has helped Congress enact some of the most significant changes to higher education policy in history, including increasing $20 billion in college aid for students and families, cleaning up shady practices in the student loan industry, and modernizing our higher education program. She has been a top-notch advocate for our nation’s college students and families and will bring the same expertise, energy and heart to the Education Department. I look forward to working with her,   Secretary Duncan and the Obama administration to rebuild our economy and middle class by strengthening educational opportunities for all Americans.”

“President Obama made it very clear that we should review every program to make sure that its operating in the best interests of taxpayers and that we should eliminate excess waste wherever we find it. The President’s proposal to save taxpayers almost $50 billion within the higher education programs while increasing benefits for students will be seriously considered by Congress.

“Today he has put forth a solid plan to make federal student loans more reliable, while saving taxpayers billions of dollars, and to ensure that the value of the Pell Grant scholarship reflects families’ increasing financial burdens.

“In today’s economy, we must do everything we can to make sure that the federal student aid programs that students and families depend on are as reliable and efficient as possible. I look forward to working with him and Secretary Duncan to make college more affordable and accessible for every qualified American who wants to attend.”

BACKGROUND

Among other things, the President’s budget proposes:

FEDERAL STUDENT LOANS: There are two types of federal student loans: the Direct Loan Program (where loans are made directly to students by the government) and the Federal Family Education Loan Program (when loans made by private lenders are guaranteed by the federal government). Both types of loans carry the same interest rates and terms for students, but the Direct Loan program is less expensive and yields significant taxpayer savings.  For more information on these programs, click here.

President Obama proposes that, beginning in 2010-2011, all new student loans would be originated through the Direct Student Loan program. The Office of Management and Budget estimates this would save taxpayers $24.3 billion over five years and $47.5 billion over ten years by making the program more efficient.

PELL GRANT SCHOLARSHIPS: The President also proposes to index the maximum Pell Grant scholarship award to the Consumer Price Index plus one percent, which will better reflect the economic realities students and families face.

President Obama has already enacted a substantial investment in k-12 and higher education in his economic recovery plan, including a significant $500 increase in the Pell Grant scholarship for students next year.  When combined with other increases enacted during the 110th Congress, by 2010 the maximum Pell Grant award will have increased by $1,500 – or 37 percent – since Democrats regained control of the Congress. For more information, click here.

Additional media articles about President Obama's proposed changes to the direct lending program

U.S. Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee, today said that the law’s higher education benefits are an important down payment on President Obama’s goal of making college more affordable and accessible.

“President Obama’s economic recovery plan is a victory for college students and their families,” said Miller. “A sustainable economic recovery depends heavily on guaranteeing that our students can continue to have access to an affordable college education. This law will provide some much-needed relief to millions of students struggling to pay for college while their families are losing jobs, income and financial security.”

The law will provide immediate relief for college students in several ways:

• Increasing the Pell Grant scholarship by $500. The bill increases the maximum award to $5,550 by next school year and to $5,000 for 2010. When combined with other increases enacted during the 110th Congress, the maximum Pell Grant award will have increased by $1,500 – or 37 percent – since January 2007.. About seven million students would benefit from this increase.
• Establishing a new college tuition tax credit of $2,500. The bill establishes a new, partially refundable “American Opportunity” tax credit, expanding access to a higher education tax credit to about four million students.
• Creating new work-study opportunities for college students. The bill invests $200 million in work-study opportunities for college students, creating jobs for an additional 133,000 students.

These investments will also bring direct benefits for local economies across the country. College and universities create jobs, support taxes and generate spending on goods and services in states and communities. For example, colleges and universities in the Atlanta area supply 130,000 jobs and contribute $10.8 billion annually to the state’s economy. Each year, the University of Houston system generates over $3 billion in local economic activity and 24,000 local jobs. And in 2006, Nebraska’s 14 private universities and colleges spent about $521 million on goods and services – generating another $900 million in spillover effects for a total estimated benefit of $1.42 billion to the state’s economy.

Increasing student aid will help more students stay in college and more new students enroll in college – which in turn will help colleges and universities keep more jobs on the payroll and continue to serve as local economic engines.

For more information on student aid and other provisions included in the American Recovery and Reinvestment Act, click here.

The American Recovery and Reinvestment Act, H.R. 1, which passed the House by a vote of 244 to 188 would increase the Pell Grant scholarship to its highest amount ever, and create a new tuition tax credit for families.

“A long-term recovery falls not only on the shoulders of today’s workforce but also tomorrow’s,” said U.S. Rep. George Miller (D-CA), chairman of the House Education and Labor Committee. “This economic crisis is putting enormous pressure on families’ wallets, and making it much, much harder for students to pay for college. We can’t allow this downturn to put an entire generation of students’ dreams of getting a college degree further out of reach.”

The legislation will provide immediate relief for college students in several ways, including:

• Increasing the Pell Grant scholarship by $500. The bill increases the maximum award to $5,350 by next school year and to $5,550 for 2010. This brings the total Pell Grant funding increases to $1500 – or 37 percent – since the Democrats first regained control of the Congress. About seven million students would benefit from this increase.
• Establishing a new college tuition tax credit of $2,500. The bill establishes a new, partially refundable “American Opportunity” tax credit, expanding access for higher education tax credit to about four million students.
  
• Creating new work-study opportunities for college students. The bill invests $490 million in work-study opportunities for college students in fields related to their major or in community service, creating jobs for an additional 200,000 students.

 For more information on student aid and other provisions included in the American Recovery and Reinvestment Act, click here.

“Senator Pell was an exemplary public servant and a true champion for students and young Americans. His vision of a college education for every American transformed our financial aid system and paved the way for millions of students to achieve their dreams. His strength, wit, and unyielding determination led to the creation of what we now aptly call Pell Grant scholarships – grants that have helped make college more affordable and accessible for countless low- and moderate-income students and their families. Senator Pell will be fondly remembered and very sorely missed. In this next Congress, we will honor Senator Pell’s legacy by working to ensure that all students have the opportunity to obtain a college degree.”

For more information about Pell Grants and key legislation regarding higher education passed in the 110th Congress, click here.

“For months now, while federal student loans have remained readily available due to swift and prudent action by Congress and the administration, some students and families have had trouble accessing the additional loans they need to help pay for college. Loans are a critical part of ensuring that students can get a college education and succeed in our 21^st century global economy.  We can’t allow students’ dreams of going to college to be sidelined by the economic crisis"

“We hope that this new program will work as intended: To get credit markets flowing again and make loans more accessible and affordable for students and families. We look forward to learning more details about this proposal so we can be assured that it will operate in the best interests of America's college students, their families and taxpayers.”

Miller is the author of two laws that helped safeguard federal student loans from turmoil in the economy at no cost to taxpayers. Since the enactment of these laws, no student or parent has reported trouble accessing the federal student loans for which they are eligible. For more information, click here.

Miller is also the author of a recently enacted law, the Higher Education Opportunity Act, which provides new protections for students when borrowing private educational loans, including safeguards against deceptive marketing practices, requiring private student loan certification, and prohibiting lenders from penalizing borrowers for paying off their private loans early. For more information, click here.