President Barack Obama’s proposal to make the process of going to college affordable, accessible and fair for all students under the Student Aid and Fiscal Responsibility Act passed the House education committee July 21.

The measure would remove private lenders from the federal student loan industry and generate nearly $90 billion in savings over 10 years that would help fund federal grants and loans and allow students to borrow directly from the government through colleges.

The bill would eliminate an entire category of student loans issued by private lenders and subsidized by the federal government and expand direct lending by the government starting next July. Such savings would be used to fund a $40 billion increase in federal Pell Grant scholarships over 10 years, $10 billion in community college upgrades, $8 billion in pre-kindergarten changes and much more.

The bill would link Pell Grants to inflation for the first time since the program’s creation in 1972, raising the maximum grant from $5,500 to $6,900.

The bill passed out of committee, 30-17, with two Republicans voting with the Democrats. It now goes to the full House and will be taken up by the Senate after the House vote.

“This is a huge step forward for higher education in a time when the country really needs it,” Edie Irons with the Institute for College Access and Success told the World. The legislation could make a significant impact for students and allow people to take advantage of going to college, added Irons. She pointed out that low- and middle-class students who take out loans actually borrow more and find themselves more in debt than others after college.

Irons said that it is important to point out the major differences between private and federal student loans. “A private student loan is much more like a credit card with higher interest rates,” she said. “There are very little protections.”

Irons noted that federal loans have fixed interest rates with specific eligibility criteria that include repayment protections in case of economic hardships or the need to apply for deferments. Private student loans on the other hand do not, she said.

“This bill will simplify a complicated student loan system and will help consumers and students tell the difference between private and federal student loans,” said Irons.

Irons expressed optimism that a major education reform bill will pass in Congress eventually. She hopes the Senate’s version will be similar to the House bill.

Rep. George Miller, D-Calif., chair of the House Education and Labor Committee, introduced the measure. “We can either keep sending these subsidies to banks and a broken system, or we can start sending them directly to students and their families,” he told reporters.

Explaining the bill further in an op-ed at www.politico.com, Miller wrote that the financial lending system is badly broken and, despite best intentions, fails students and their families.

“The college financing system that was supposed to ensure all students access to college is dangerously out of control,” said Miller. Tuition has skyrocketed and shows no signs of abating. Roller-coaster credit markets have put the federally guaranteed student loan program, which for years has originated almost three-quarters of all federal college loans, on life support. Pell Grants and other aid that a generation ago offered students about half of their tuition costs today cover only about 30 percent, the California Congressman added.

“We must fix this broken system – or risk jeopardizing the educational future of American families and our nation’s competitive future,” wrote Miller. “Our choice is clear: We can continue funneling taxpayer dollars through boardrooms, or we can start sending them directly to dorm rooms.”

President Obama, House Democrats and Miller hope to create a reliable, affordable and high-quality federal student-aid program that will revive the essential opportunity of a college education for all Americans.

The measure would help students graduate with less debt by dramatically increasing grant aid and stabilizing student loans without costing taxpayers a dime and a pay-as-you-go college aid transformation. Interest rates will also be kept down for low-income students. In 2012, interest rates on subsidized federal student loans will increase from 3.4 percent to 6.8 percent allowing such rates variable starting that year, keeping them low and affordable.

The bill also would pay for these investments and insulate all federal student loans from market swings by originating all new loans, starting in 2010, through a more stable option: the Direct Loan Program. Direct lending will provide students with same low-cost loans as lenders but at a fraction of the cost and without the conflicts of interest that entangled lenders in recent years.

An upgrade in customer service for all federal loan borrowers would also be implemented. Rather than force private industry out of the system, the measure would forge a new public-private partnership that maintains jobs and provides all borrowers with high-quality services when repaying loans. A competitive bidding process would be established, allowing lenders and non-profits to keep servicing loans harnessing a private-sector innovation for the public good.

“We must transform our financial aid system from one that benefits banks over students into one that makes paying for college a better deal for families and taxpayers,” said Miller.

United States Student Association President Carmen Berkley welcomed the bill. “With college students graduating tens of thousands of dollars in debt, now is the time for government to revitalize its financial aid programs,” she said in a recent statement. “The funding increases in this bill will directly affect many of the USSA’s 4.5 million members, along with millions of other low- and middle-income students across the country.”

Education is a right, not a privilege, said Berkley. USSA will be actively supporting this historic legislation as a means to help millions of students and potential students realize their dream of achieving a college degree, she said.

Critics charge that Republicans, most of whom oppose the bill, are distorting the debate by describing the education measure as a plan for pushing private capital out of student lending. It would be more accurate to describe it as a plan for pushing corporate welfare out of student lending, they said.

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