A new federal law that will add $11.4 billion to federal Pell Grant funds — representing the largest single increase in student aid since the passage of the G.I. Bill in 1944 — goes into effect this week.
The new legislation, the College Cost Reduction and Access Act, will increase the maximum Pell Grant, a federal student aid award, from the current $4,310 to $5,400 within five years, halve interest rates on need-based student loans from 6.8 percent to 3.4 percent and cap student debt levels at 15 percent of total discretionary income — the income left over after taxes and fixed life expenses.
To pay for the Pell Grant increase, the Act will cut federal subsidies to private lenders by about $20 billion within five years.
Although politicians said they consider the new law a victory, many Yalies and financial aid experts said they believe it represents a negligible improvement at best and could hurt students once enacted.
Both houses of Congress passed the bill last month, and President George W. Bush ’68 signed it into law last Thursday with pressure from both Democrats and Republicans.
Rachel Racusen, the deputy communications director for the House Committee on Education and Labor, said Calif. Representative George Miller, the Committee’s chairman and co-author of the bill, worked with students and politicians to pass the bill, which she said is a victory for those who struggle to pay for college.
“With today’s skyrocketing tuition costs, students are graduating with more college loan debt than ever before, and many would-be students — as many as 200,000 each year — are holding off going to college altogether because of the cost,” Racusen said in an e-mail. “The College Cost Reduction and Access Act will help make college more affordable and accessible for millions of students and will help ease the debt burden that many students face when they graduate.”
But Director of Student Financial Services Caesar Storlazzi said the effects of the Pell Grant expansion will be felt more at schools without significant institutional aid. Because Yale students receive as much aid — from a combination of federal, state and University funds — as the admissions office determines they need, the increase in Pell Grant funds will simply produce a decrease in the amount of financial aid Yale offers, he said.
In the 2006-2007 year, 508 Yale students received Pell Grants that totalled $1.4 million. Two years ago, Yale eliminated the parental contribution for students from families earning under $45,000 and reduced it for families earning between $45,000 and $60,000 per year.
The government’s reduction in federal subsidies to student loan providers comes on the heels of recent scandals in the loan industry. Investigations by New York State Attorney General Andrew Cuomo earlier this year uncovered instances of private lenders giving financial incentives to several college financial aid officers — including Columbia University Executive Director of Financial Aid David Charlow — in exchange for officers’ endorsement of the companies to their students.
Conn. Representative Joe Courtney, a member of the House Committee on Education and Labor, said private lender lobbyists warned Congress that the reductions in federal subsidies would make it difficult for them to assist students, but “the real hard evidence was mixed at best.”
“There is no financial aid office in Connecticut that isn’t cheering, and it is a great advance for students coming in,” he said. “I agree that we still have more work to do, and the issue of high student debt will not disappear with this bill. But talking to people who deal with student aid, no one is pulling this as just symbolic — they see it as extremely substantive.”
But Mark French, the associate director of financial aid for the Connecticut Department of Higher Education, said the cut will create problems for private student lending companies by leading smaller companies to close down and larger ones to force loan applicants to pay fees that would previously be waived.
“The downside for students and families is if there are less lenders to choose from,” French said. “For a consumer, fewer choices are never a good thing because more choices drive prices lower.”
Yale students will likely find the effect of these increased fees to be more noticeable than the effect of the increased Pell Grants, Storlazzi said.
Still, Andrew Williamson ’09, a member of Yale Students for Financial Aid Reform, said he is happy that the government will scale down subsidies. Although he thinks insufficient college financial aid policies will cause the increase in funding to have little or no effect on low and middle-class students, Williamson said he is excited because passage of the act symbolizes Democratic control of Congress.
Joseph Monte, president emeritus of the National Association for College Admissions Counseling and a guidance counselor at Albert Einstein High School in Kensington, Md., said that although the new law may be a benefit to students in general, he is concerned that there is not enough Pell Grant funding to reduce debt for the lower class.
“It’s the middle class that will most benefit, which is good, and some of the rich people may take advantage, but I don’t see the poor benefiting,” he said.
While experts agree it is still too early to determine how effectively the Act will help lower-income students and lessen the influence of private lenders in the wake of recent scandal, some Yale students remain optimistic about its good intentions.
“I think that Yale does a pretty good job with financial aid, but I think they’ll now have lower-class and middle-class [students] applying to the school,” Courtney McKinney ’11 said. “It’s important that everyone gets into college, and it shouldn’t matter what economic background you’re in.”
Passed in 1944, the G.I. Bill helped underprivileged students pay for college — with up to $30,000 — after serving two to three years of active duty in any military branch. The College Cost Reduction and Access Act will provide forgiveness of any Federal Direct Loan — including Direct Stafford and PLUS — for those who serve ten years.