“Today Congress voted to stop wasting billions of taxpayer dollars to subsidize big banks, and start investing that money directly in our students and families. With this one move, we will help students pay for college, prepare them for our global economy, keep jobs in America and reduce the deficit,” said U.S. Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee and the author of the legislation. “We are now just one step away from sending President Obama reforms that are good for students, good for taxpayers, and good for U.S. jobs.”
According to the Congressional Budget Office, this change will generate $61 billion in savings over 10 years that will be used to boost Pell Grant scholarships, make student loans more manageable for borrowers to repay, and strengthen community colleges.
Private lenders and banks will still have a role in servicing all federal student loans, which will guarantee borrowers high-quality customer services, maintain jobs in the private sector, and even protect jobs from being shipped overseas. Direct government loans, unlike loans made by banks, must be serviced by U.S. workers.
The federal government is now funding 88 percent of all federal student loan volume, between loans that are already lent to students directly through the government and an emergency aid program student lenders have relied on since the credit crisis in 2008.
The budget resolution passed by the House and Senate budget committees last year instructed Congress to use reconciliation – which requires a simple up or down vote – to pass health insurance and student loan reforms that reduce the deficit by $1 billion over five years. This student loan reform meets that requirement – it is fully paid for and reduces the deficit by at least $10 billion over 10 years. Altogether, the student loan reform and health reform bills reduce the deficit by $143 billion over 10 years.
Specifically these provisions will:
- Make college more affordable for millions of students by investing a total of $36 billion into the Pell Grant program over 10 years, including $22.6 billion to increase the maximum Pell Grant award to keep up with inflation;
- Protect students’ Pell Grant scholarships from the upcoming budget shortfall by investing $13.5 billion of those funds to help close the shortfall, caused by increased demand for the scholarship. Without this investment, 8 million students could see their Pell Grants cut by 60 percent next year and 600,000 students could lose their scholarships completely, according to the U.S. Department of Education;
- Keeps jobs in America. Rather than force private industry out of the system, lenders will compete for contracts to service all federal student loans, which will guarantee borrowers high-quality customer service and preserve jobs;
- Invest $2.55 billion in Historically Black Colleges and Universities and Minority-Serving Institutions to help boost college retention and graduation of minority students;
- Make federal student loans more manageable to repay by strengthening an Income-Based Repayment program that currently allows borrowers to cap their monthly federal student loan payments at just 15 percent of their discretionary income. These new provisions would lower this monthly cap to just 10 percent for new borrowers after 2014;
- Give students the support they need to stay in school and graduate by investing $750 million in college access and completion programs; and
- Prepare students and workers for competitive jobs by investing $2 billion in a competitive grant program for community colleges to develop and improve educational or career training programs.
To learn more about what these reforms mean for students, click here.
For a myth-fact sheet on this legislation, click here.
To view how this legislation would benefit students in each congressional district, click here.