Senator John Kerry today praised the Senate passage of the Student Aid and Fiscal Responsibility Act (SAFRA), which was included in the Reconciliation of the Patient Protection and Affordable Care Act.
By delivering all student loans through the direct student loan program -- instead of subsidizing banks through the more costly Federal Family Educational Loan program -- this bill will save taxpayers money that will be reinvested in education. Pell Grants will reach a historic $40 billion in funding nationwide, additional funding for grants to community colleges, Historically Black Colleges and Universities and other Minority Serving Institutions will be increased, the application process for student loans will be simplified and the American Opportunity Tax Credit will be increased.
Government estimates show Massachusetts could receive $433 million over ten years for an additional 8,459 Pell Grant recipients and $8.5 million over five years for College Access Challenge Grants.
"To paraphrase Vice President Biden, this is a big freaking deal. Nearly two-thirds of Massachusetts students graduate with over $23,000 in student loan debt. This bill will make college more affordable for everyone and put it within reach for many who can't shoulder the bills today. We're talking about almost 8,500 more students in Massachusetts who will go to college on Pell Grants. That's a huge difference," said Senator Kerry.
The bill will be strengthened by:
· Investing in students rather than subsidizing banks.
o The bill pays for increased investments in Pell Grants by reforming the current student loan program by delivering all loans through the direct student loan program -- instead of subsidizing banks through the more costly Federal Family Education Loan program.
o These subsidies basically guarantee no risk loans for lenders. Through direct lending the government will directly lend to students, cutting out the waste and providing better service.
o The CBO estimates that this will save taxpayers $68 billion by 2020.
o Private lenders however can still participate. The bill establishes a competitive bidding process that allows the Department of Education to select lenders based on how well they serve borrowers, educate them financially, and prevent loan defaults.
· Raising the maximum Pell Grant and assuring it continues to grow.
o Pell grant scholarships help more than 8 million Americans afford college every year.
o This bill will ensure that all eligible students receive an award and that these awards will increase over time to keep pace with inflation and the rising costs of a college education.
· Stabilizing Pell Grant funding
o The bill covers the expected funding shortfall and much of the recent growth in Pell costs
In addition, under the bill new students enrolling in 2014 or later can choose to:
· Limit payments to ten percent of income (Under current law it's 15 percent).
o More than one million borrowers nationwide would be able to reduce their monthly payments.
o The payment will be reduced by more than $110 per month for a single borrower who earns $30,000 a year and owes $20,000 in college loans.
· Forgive any remaining debt after 20 years, or ten years for those in public service (under current law it's 25 years).
· Fully funded student loan reforms.
o These new initiatives are funding by ending the current subsidies given to financial institutions that make guaranteed federal student loans. Starting July 1, all new loans will be direct loans delivered and collected by private companies under performance-based contracts with the Department of Education.