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House Passes a Major Student Loan Overhaul (and Votes to Defund ACORN)

September 17, 2009 - by Donny Shaw

On a mostly party-line vote, the House of Representatives today approved a major piece of legislation designed to attain President Obama’s goal of making college more affordable.

The bill, known as the Student Aid and Fiscal Responsibility Act of 2009, would end a long-standing program that provides government subsidies to student loan companies like Sallie Mae and Nelnet. Under the bill, all new government-insured student loans would be made through the U.S. education Department. Private companies would be entirely wiped out of the market for originating student loans. The money that the government would save by ending subsidies to the companies – an estimated $80 billion over 10 years – would be used to increase funding for scholarship programs, keep interest rate low on student loans, and pay off the federal deficit.

From the House Education and Labor Committee, here’s a more specific rundown of the bill’s savings would be invested:

  • Invests $40 billion to increase the maximum annual Pell Grant scholarship to $5,550 in 2010 and to $6,900 by 2019. Starting in 2011, the scholarship will be linked to match rising costs-of-living by indexing it to the Consumer Price Index plus 1 percent. See the total Pell funding from HR 3221 by Congressional District.
  • Invests $3 billion to bolster college access and completion support programs for students. It will increase funding for the College Access Challenge Grant program, and will also fund innovative programs at states and institutions that focus on increasing financial literacy and helping retain and graduate students.

  • Strengthens the Perkins Loan program, a campus-based program that provides low-cost federal loans to students, by providing the program with more reliable forms of credit from the federal government and expanding the program to include significantly more college campuses.

  • Keeps interest rates low on need-based – or subsidized – federal student loans by making the interest rates on these loans variable beginning in 2012. These interest rates are currently set to jump from 3.4 percent to 6.8 percent in 2012.

  • Makes it easier for families to apply for financial aid by simplifying the FAFSA form. Building on proposals recently put forth by the Obama administration, the legislation will dramatically cut down the number of questions on the form by allowing students and families to apply for aid using the information on their tax returns.

  • Invests $2.55 billion in Historically Black Colleges and Universities and Minority-Serving Institutions to provide students with the support they need to stay in school and graduate.

  • Provides loan forgiveness for members of the military who are called up to duty in the middle of the academic year.

It also provides funds for things like job training, adult education, public school renovation and modernization, and competitive early education grants for states. A complete rundown can be found on the Education and Labor page.

The bill now moves to the Senate where it is expected to face more opposition than it did in the House. Conservative Democrats Sen. Ben Nelson [D, NE] and Sen. Kent Conrad [D, ND] both have large banks in their states that stand to lose a lot from the bill’s passage. The two are expected to support a Sallie Mae-led proposal to preserve a role for private banks in the new student loan environment by allowing them to make loans that are bought back by the government. The Congressional Budget Office has estimated that such an arrangement would lead to $13 billion less in savings from the bill over 10 years.

Eliza Krigman at the National Journal has reported that Senate Democrats will likely attempt to pass the bill through the budget reconciliation process in order to override the concerns of conservative Democrats and Republicans. The reconciliation process allows bills affecting the budget to pass without being subject to a filibuster.

Defunding ACORN

During the House debate, a number of amendments were approved, most of them relatively minor. But at the last minute, in the form of a motion to recommit with instructions, Rep. Darrell Issa [R, CA-49], won a major partisan victory by adding language to the bill that would block any federal funds from going to the Association of Community Organizations for Reform Now (ACORN). The motion passed by a vote of 345-7, with all Republicans voting “yes.” “ACORN has violated serious federal laws, and today, the House voted to ensure that taxpayer dollars would no longer be used to fund this corrupt organization,” House Minority Whip Rep. Eric Cantor [R, VA-7] said after the vote. The vote does not affect the substance of the bill relating to student loans in any way.

Earlier this week, the Senate voted, 83-7, on an amendment to the Transportation, Housing and Urban Development Appropriations Act to block federal housing funds for ACORN. The sudden anti-ACORN push in Congress comes after a series of undercover reports by that show some ACORN workers advising pimps and prostitutes, including an incident in which an ACORN worker advised a pimp on how to evade taxes on the trafficking of underage old El Salvadorian prostitutes.

The Senate and House amendments, which differ slightly in scope, will have to be reconciled before they are sent to the President. There is no indication at this point as to what the provision will look like after it goes to conference committee, or if President Obama is willing to sign it into law.

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