Congress tinkers with financial aid programs

by Coralie Carlson

As lawmakers start debating plans to reduce interest rates, students can expect a boost in financial aid from Congress next year.
The House and Senate reconvene today after taking a two-week Easter break. University officials are waiting for lawmakers to pick up the Higher Education Reauthorization Act, which contains plans to increase student aid and pump up Pell Grants and other federal college programs.
Before recessing, committees in the House and Senate reached preliminary agreements on student loan interest rates and other controversial issues. Both chambers should introduce the legislation on their floors during the next two weeks.
“I think they build on the foundation of some excellent programs,” said Phil Lewenstein, director of communication for the Higher Education Services Office.
As of July 1, the interest rate on student loans is scheduled to drop from 8.2 percent to 6.9 percent. While that’s good news for students, it’s bad for banks who say the decline would make student loans unprofitable. Bank officials told lawmakers they couldn’t offer as many loans to students at that rate.
More than half of college students need loans to finance their education, according to a Government Accounting Office report.
University students don’t have to worry about banks not offering loans. Because this is a direct loan institution, University loans come straight from the federal government.
“Our students aren’t out there getting loans at various banks,” said Tom Etten, director of federal relations at the University. “We don’t have the banks as the middle person.”
A joint-committee reached an agreement with student groups and banks. Lawmakers decided to lower the interest rates to 6.8 percent while students are in school. After graduation, that rate would increase to 7.8 percent. The federal government would then subsidize banks to cover their losses.
Federal officials also proposed increasing the federal Pell Grant. The Senate’s proposal would raise the maximum grant to $5,000; the House wants to set the maximum grant at $4,500. Both plans would raise that cap by another $800 over the next four years.
Both bodies must agree before the bill would go to the appropriations committee, which has expressed reservations about financing the plan.
“Reauthorization is fine, but the real issue is what they fund,” Lewenstein said. Traditionally Congress has not funded the entire maximum grant.
Even if Congress does bump up Pell Grants, Minnesota students won’t immediately see a difference.
In Minnesota, the State Grant and Pell Grant programs are linked. So if a student receives a $2,500 Pell Grant, that amount is subtracted from his eligibility for a State Grant.
Legislators want to take the money students don’t receive and put it back into the financial aid pool.
Lawmakers also raised the cap for funding TRIO programs from $540 million to $800 million annually. There are 1,750 of these programs across the nation designed to help lower-income, first-generation college students.
The University houses three: Upward Bound for high school students, Student Support Services for General College students and Ronald McNair Scholars for graduate students.
“We could be blindsided, but right now it looks promising,” said Bruce Schelske, director of TRIO services at the University.
Another plan active in both chambers will offer incentives for education majors. In exchange for teaching in an elementary or secondary school with a large population of low-income children, the graduate student’s debts for the last two years of school would be forgiven.
The program is designed to combat teacher shortages, like the one expected in the Twin Cities in a few years.
“It presumably will help with recruitment,” said Karen Seashore Louis, associate dean in the College of Education and Human Development. “Now the question is: Can the institutions respond?”