Much to the Republicans’ chagrin, CBO has officially estimated that this legislation saves $87 billion over 10 years.

“It’s unfortunate that the Republicans are choosing to spend their time conjuring up cheap political tricks rather than working to help students and families in a very difficult economy,” said U.S. Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee and the author of the legislation. “Their first desperate attempt to mislead the public didn’t work yesterday, and it won’t work today. Students, families, and taxpayers aren’t fooled – they know that this bill will make historic investments to make college affordable and that it’s completely paid for.”

All of the student aid programs included in the Student Aid and Fiscal Responsibility Act are mandatory and will end at the dates specified in the bill. Any additional funding for these benefits would also have to meet pay-as-you-go budget requirements, which require that any new spending be paid for.

Even though the Budget Committee has said that the programs in HR 3221 do indeed end at the dates specified in the bill, the Republican analysis released today asked CBO to hypothetically score the cost of these programs if they didn’t expire, as the legislation requires.

To view the official CBO estimate of this bill, click here.

For more information on the first manipulated analysis released by Republicans yesterday, click here.
 

“It’s clear that Republicans didn’t like the truth – that our legislation generates almost $90 billion that could be used to help students, families, and taxpayers – so they shamelessly decided to have a little fun with the numbers,” said U.S. Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee and the author of the legislation. “This is nothing more than a desperate attempt to confuse the public and manipulate a clear determination by CBO that switching to the Direct Loan program is the most sound, fiscally responsible policy decision we could make for families and taxpayers. This is yet another predictable political gimmick from a party that is proving that they will do or say anything – no matter how misleading – to block reforms that will make a tremendous difference in improving the lives of America’s families.”

BACKGROUND

There are several factors to keep in mind when reporting on this estimate:

CBO’s official estimate still projects that the Student Aid and Fiscal Responsibility will save $87 billion over 10 years. This alternative estimate does not change the savings the bill will generate, or how those savings will be spent, in any way.

This alternative estimate ignores current student loan market conditions, under which the federal government is currently supporting 60 percent of all federal student lending. This estimate assumes normal credit market conditions, under which the federally guaranteed student loan program functions entirely independently, as it used to. It does not reflect today’s reality: that the federally-guaranteed student loan program is on life support. The federal government, through both the Ensuring Continued Access to Student Loans Act, and the Direct Loan program, is now financing 60 percent of all federal student loan activity. This current ECASLA-supported, federally-guaranteed student loan program is very similar to the DL program – it generates the same cash outflow upfront, but the funds are sent to lenders who then give it to borrowers. If this alternative estimate was based on this current reality, it would likely show a higher market-risk adjusted subsidy rate for the Federal Family Education Loan Program – again reflecting that the program is on life support.

The letter highlights the difference between the streamlined payment structure of DL and the complicated payment structure of FFEL: “In the direct student loan program, the federal government makes a large, one-time outlay for the amount of the loan (net of various fees) and then receives a stream of principal and interest payments over time. In the guaranteed student loan program, the federal government faces a far more complicated set of payments. It does not disburse a principal amount (loans are disbursed by private lenders) but instead receives some up-front fees, makes a stream of subsidy payments (known as special allowance payments) to lenders, partially compensates lenders for loans that go into default and pays certain borrower benefits, in addition to various other receipts and payments.” Again, this does not reflect the additional risk that the federal government currently takes on under the ECASLA program.

Even when using this alternative methodology that lenders and critics of H.R. 3221 favor, this estimate still reinforces that Direct Loans save more money than FFEL loans. “CBO estimates that over the 2010-2019 period, the subsidy cost for each dollar of a guaranteed loan will exceed the subsidy cost for each dollar of a direct loan by between 10 and 20 cents. Generally, in CBO’s estimation, the direct loan program will have a negative subsidy rate (that is the net receipts to the government on a present-value basis are projected to be greater than its disbursements), whereas the guaranteed loan program will have a positive subsidy rate (that is a net cost on a present value basis).”

Even CBO acknowledges concerns with using this alternative estimate; it leaves many questions unanswered about how future credit market turmoil could impact the student loan programs. “The approach does raise some concerns. As the recent financial turmoil has shown risky assets, including student loans, can fluctuate wildly in value. Those fluctuations can lead to large changes in market-based estimates of subsidy rates for student loans from one year to the next.”

Recent history has exposed deep vulnerabilities in FFELP; the Direct Loan program is completely safeguarded from any such market risks. This estimate concedes that future credit fluctuations could have significant impacts on the cost of FFEL subsidy rates. 

“Today’s vote is a vote to put students before banks and to finally ensure that our nation’s financial aid programs operate as intended – in the best interests of students, families and taxpayers,” said U.S. Rep. George Miller (D-CA), the Chairman of the Committee and the author of the bill. “This landmark legislation will help write the next great education legacy for our country. President Obama has rightly called for us to make historic investments to make college more affordable, to empower community colleges to help rebuild our economy, and to prepare our youngest learners to arrive at kindergarten ready to succeed. I hope this Congress will join our Committee in standing with him on the right side of history.”

“This bill goes a long way towards expanding the accessibility and affordability of a college education for students across America” said U.S. Rep. Rubén Hinojosa (D-TX), Chairman of the Subcommittee on Higher Education, Lifelong Learning, and Competitiveness. “The bill will streamline the financial aid application process and increase funding for Pell Grants and Minority Serving Institutions, while also helping lower our national deficit.  This bill accomplishes something we can all be proud of.”

Similar to what President Obama proposed in his FY 2010 budget, the bill will originate all new federal student loans through the Direct Loan program starting in 2010, instead of through lenders subsidized by taxpayers in the federally-guaranteed student loan program. Unlike the lender-based program, the Direct Loan program is entirely insulated from market swings and can therefore guarantee students access to affordable college loans, at the same low interest rates, terms and conditions, no matter what happens in the economy.

The legislation will ensure that all federal student loan borrowers receive the best possible customer service when repaying their loans by forging a new public-private partnership that allows private lenders to compete for contracts to service loans. Additionally, it will ensure that non-profit lenders have the opportunity to continue servicing loans – preserving a role for lenders and maintaining jobs in communities throughout the country.

According to estimates from the Congressional Budget Office, the legislation will generate $87 billion in savings over the next 10 years. The legislation would invest those savings directly in students and families by:

• Investing $40 billion to increase the maximum annual Pell Grant scholarship to $5,550 in 2010 and to $6,900 by 2019. Starting in 2010, the scholarship will be linked to match rising costs-of-living by indexing it to the Consumer Price Index plus 1 percentage point;
• Investing $3 billion to bolster college access and completion support programs for students;
• Strengthening the Perkins Loan program, a campus-based program that provides low-cost federal loans to students;
• Keeping interest rates low on need-based – or subsidized – federal student loans by making the interest rates on these loans variable beginning in 2012. These interest rates are currently set to jump from 3.4 percent to 6.8 percent in 2012;
• Making it easier for families to apply for financial aid by simplifying the FAFSA form;
• Providing loan forgiveness for members of the military who are called up to duty in the middle of the academic year; and
• Investing $2.55 billion in Historically Black Colleges and Universities and Minority-Serving Institutions to provide students with the support they need to stay in school and graduate.

In addition, the Student Aid and Fiscal Responsibility Act will direct $10 billion of these savings back to the U.S. Treasury to help pay down the deficit. It will invest over $4 billion for school modernization, renovation and repair projects that will help improve school buildings across the country and help the nation transition to a clean energy economy. And it will also invest $1 billion per year over eight years to help ensure that the next generation of children can enter kindergarten with the skills they need to succeed in school. Building on proposals included in President Obama’s 2010 budget, the bill establishes the Early Learning Challenge Fund, a competitive grant program that challenges states to build a comprehensive, high-quality early learning system for children from birth through age five. 

To view a summary of the legislation, click here.

The House Education and Labor Committee has been examining various proposals for student loan reform and seeking feedback from all key stakeholders over the past few months. In May, the Committee held a hearing to examine these proposals, at which the Obama administration, lenders and colleges and universities testified. For more information on that hearing, click here.

“As President Obama has made clear, we have a rare opportunity to make a landmark investment in America’s economic future by making common-sense changes to the way our student loan programs operate,” said Miller. “Students and families need stronger, reliable college aid, our economy needs a highly-skilled, educated workforce, and our taxpayers need policies that make the best use of their dollars. This legislation will help us reach all of these goals by transforming our financial aid system from one that puts banks before students into one that makes paying for college a better deal for families and taxpayers.”

Similar to what President Obama proposed in his FY 2010 budget, the bill will originate all new federal student loans through the Direct Loan program starting in 2010, instead of through lenders subsidized by taxpayers in the federally-guaranteed student loan program. Unlike the lender-based program, the Direct Loan program is entirely insulated from market swings and can therefore guarantee students access to affordable college loans, at the same low interest rates, terms and conditions, no matter what happens in the economy.

The legislation will ensure that all federal student loan borrowers receive the best possible customer service when repaying their loans by forging a new public-private partnership that allows private lenders to compete for contracts to service loans. Additionally, it will ensure that non-profit lenders have the opportunity to continue servicing loans – preserving a role for lenders and maintaining jobs in communities throughout the country.

According to estimates from the Congressional Budget Office, the legislation will generate $87 billion in savings over the next 10 years. The legislation would invest those savings directly in students and families by:

• Investing $40 billion to increase the maximum annual Pell Grant scholarship to $5,550 in 2010 and to $6,900 by 2019. Starting in 2010, the scholarship will be linked to match rising costs-of-living by indexing it to the Consumer Price Index plus 1 percent;
• Investing $3 billion to bolster college access and completion support programs for student;
• Strengthening the Perkins Loan program, a campus-based program that provides low-cost federal loans to students;
• Keeping interest rates low on need-based – or subsidized – federal student loans by making the interest rates on these loans variable beginning in 2012. These interest rates are currently set to jump from 3.4 percent to 6.8 percent in 2012;
• Making it easier for families to apply for financial aid by simplifying the FAFSA form;
• Investing $2.55 billion in Historically Black Colleges and Universities and Minority-Serving Institutions to provide students with the support they need to stay in school and graduate; and more.

In addition, the Student Aid and Fiscal Responsibility Act will direct $10 billion of these savings back to the U.S. Treasury to help pay down the deficit. It will also invest in early education opportunities and in school modernization projects that will help the nation transition to a clean energy economy. 

To view a summary of the legislation, click here.

For more details on:

How this legislation will help students and families, click here.

For more details on converting to Direct Loans, click here.

For more details on how this bill will strengthen community colleges, click here.

For more details on investments in early education, click here.

To view a myth versus fact sheet on this legislation, click here.

To view the numerous and varied supporters of this legislation, click here.

The House Education and Labor Committee has been examining various proposals for student loan reform and seeking feedback from all key stakeholders over the past few months. In May, the Committee held a hearing to examine these proposals, at which the Obama administration, lenders and colleges and universities testified. For more information on that hearing, click here.

Under IBR, borrowers have a portion of their income protected from loan repayment (up to 150% of the poverty level for their family size) which means graduates can afford to take jobs at lower salaries.    Borrowers are required to pay no more than 15% of any income above that threshold.  This program will allow borrowers to devote the first part of their paycheck to covering core costs like housing, food and transportation.  After 25 years of lower payments, borrowers’ remaining loan balances, including interest, will be completely forgiven. For borrowers in public service fields, like nursing, public interest law, or non-profit work, their debts will be completely forgiven after 10 years of service and loan payments.

The chart below illustrates the IBR benefits.


SOURCE: Department of Education: http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp


Income Based Repayment was enacted by the 110th Congress in 2007, as part of the College Cost Reduction and Access Act.  That bill invested an additional $20 billion in federal college aid for families at no additional cost to taxpayers. In addition to creating IBR, the law also halved interest rates on need-based federal student loans in equal steps over four years – making these loans more affordable for low- and middle-income students. Last July, the first of these four cuts took effect; today the second cut kicks in, as interest rates drop from 6 percent to 5.6 percent. The rate will continue to drop until it reaches 3.4 percent in 2011. Nationwide, about 5.5 million students take out these loans each year.  

As a result of investments made by this law and more recently by Congress and the Obama administration, millions of low-income students will also receive a Pell Grant scholarship of $5,350 for the coming year. This is more than a $600 increase above last year’s award.

To view a fact sheet on these and other 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.

In addition to other steps the Department of Education would take to simplify the FAFSA starting this summer, the Obama administration called on Congress to pass legislation that would dramatically cut down the number of questions on the form by allowing students and families to apply for aid using the information on their tax returns.

The proposals announced today build on steps taken by the 110th Congress to streamline the FAFSA and enable the Department of Education to work with the Internal Revenue Service to eliminative repetitive financial aid questions. That law, the Higher Education Opportunity Act, which Miller was the House author of, included the following provisions:

Streamlines the FAFSA Application Process

• Encourages the U.S. Education Secretary to reduce the number of questions on the FAFSA form over the next five years.
• Simplifies the FAFSA re-application process so that applicant can provide update information in subsequent years, rather than re-filing a new FAFSA form.
• Enables the U.S. Department of Education and the Internal Revenue Service to work together to use information the government already has from applicants’ federal tax forms, such as income and asset information.

Provides Families with Early Estimates of College Aid Packages

• Allows students and families to enter information and receive estimates of their Expected Family Contribution as well as their estimated federal student aid packages in the years before they fill out the FAFSA.

Creates an Easier Application Process for Low-Income Families

• Creates a two-page “FAFSA-EZ” form for low-income students and families who qualify for the “auto-zero” family contribution.

The U.S. Department of Education currently operates two programs that provide borrowers with the same federal student loans, and with the same interest rates, terms and conditions.

One is the federally guaranteed student loan program – or FFELP – under which private companies make loans to students and receive federal subsidies. These loans are virtually risk-free for lenders because they get reimbursed by taxpayers when borrowers default on their loans. The other is the Direct Loan program, under which the federal government offers loans directly to students using Treasury capital. It’s the cheaper of the two for taxpayers.

Last year, as the credit markets froze, many lenders had trouble financing their lending activity, putting the loans that millions of students and families were depending on in jeopardy.

To ensure that no eligible student or parent was denied a loan, Congress enacted the Ensuring Continued Access to Student Loans Act. This temporary program allowed the Education Secretary to purchase student loans made by FFELP lenders, but only in a manner that resulted in no additional costs to taxpayers and only if lenders used this capital to continue making new loans to students. The program is set to expire in 2010.

President Obama’s FY 2010 budget proposes increasing the Pell Grant scholarship and other forms of college aid for low- and middle-income students by almost $100 billion over ten years, at no new cost to taxpayers. His plan would be paid for by originating all new federal student loans through the Direct Loan program starting in 2010. According to preliminary estimates by the Congressional Budget Office, this would save $94 billion over the next decade.

“Reliable access to student loans is important not just for our students and their families, but also for our entire economy,” said Robert M. Shireman, the U.S. Deputy Under Secretary of Education. “We have seen the guaranteed Federal student loan system, known as the Federal Family Education Loan (FFEL) Program, come close to collapse this past year. Instead of maintaining this elaborate web of programs designed to prop up the FFEL program, we should originate 100% of new loans through the less costly Direct Loan program.”

Jack Remondi, the Vice Chairman and Chief Financial Officer of Sallie Mae, agreed that whatever policy is pursued, vast changes are needed to stabilize the student loan programs. “Sallie Mae fully supports the Administration’s objectives of assuring stable funding of the federal student loan program while generating tens of billions of dollars in taxpayer savings that can be used to increase need-based grant aid for students, specifically to put the Pell Grant program on stable footing,” he said.

Contrary to claims from critics, it would be fairly easy and inexpensive for colleges and universities that participate in FFELP to switch to Direct Loans, partly because schools would be able use the same on-site system currently used to administer Pell Grant scholarships.

Pennsylvania State University, formerly a FFELP school, switched to Direct Loans last March to protect its 38,000 students’ access to loans amidst the credit crunch.

“Direct Loans offered a logical alternative to the FFEL Program in light of our circumstances,” said Anna M. Griswold, the university’s Assistant Vice President for Undergraduate Education. “It is testimony to the streamlined nature of the direct loan process and the single point of contact model it represents, that we were able to convert fairly quickly. With adequate lead time, even most of the smaller schools will likely find converting to Direct Loans a manageable process.”

She added that Penn State did not have to hire extra staff, or increase its budget resources, during this switch and that Direct Loans offered better loan repayment and loan forgiveness options for students.

Campuses in the California State University System have found it easier for schools to administer, simpler for students and parents, and faster at originating and disbursing loans than FFELP, reported Charles B. Reed, the Chancellor of the system.

“Stability and reliability in a campus’s student loan program is tremendously important to our students and institutions,” he said. “Given this situation, coupled with the ready availability of a proven alternative in Direct Lending, beginning last year I strongly encouraged all of our remaining FFEL campuses to make the switch to Direct Lending.”

The Obama proposal would also maintain a role for the private sector by allowing companies to compete for contracts to service these loans. This competitive bidding process would result in the best customer service for borrowers by harnessing the private sector’s most innovative and consumer-friendly practices.

Miller said the committee will continue to closely examine proposals to determine the best policy for students, families and taxpayers.

To view all of the testimonies from today’s hearing, click here.

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

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.