Attached to the health care reconciliation bill that passed both chambers on March 25 are far-reaching changes in the student loan program resulting in billions in savings in part used to expand the value and availability of Pell grants to college students from low- and moderate-income families.  The legislation will allocate an additional $36 billion over 10 years to raise the maximum annual award from the current $5550 to $5975 by 2017 and index it for inflation starting in 2013.
Since the 1960s the federal government has been subsidizing banks and other private lenders to provide federally guaranteed student loans under the Federal Family Education Loan program.  SLM Corporation, commonly known as Sallie Mae, is the largest private entity originating, servicing and collecting student loans for more than 10 million borrowers.  Beginning July 1, 2010 the private companies can still compete for contracts to service loans but they will no longer be able to originate them.  The Congressional Budget Office estimates that removing the middleman by making the federal government the originator of all student loans would result in total savings of $61 billion over 10 years.  The balance of the savings would be allocated as follows: $500 million for community colleges from FYs 2010 – 2014, $2.55 billion for historically black colleges and universities, $750 million for college access programs, funds to change the terms of a student loan repayment plan, $9 billion to offset the cost of the health care bill, and $10 billion directed to deficit reduction.

The extensive changes to the student loan program were the centerpiece of the Student Aid and Fiscal Responsibility Act of 2009, H.R. 3221, first passed in the House in September.  CBO’s original estimate of savings was greater than $61 billion but needed to be downgraded as more colleges and universities began enrolling in the federal lending program earlier in anticipation of the change.  As a result two programs that would have benefited from the savings will no longer receive money in this legislation – early education for children from birth through kindergarten and the American Graduation Initiative aimed at improving graduation rates and upgrading facilities at community colleges.

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