House to review overhaul of Pell Grants, student loans

A House of Representatives subcommittee will propose fundamental changes in both Pell Grants and student loans later this month when it begins writing a new education bill to replace the current Higher Education Act. Colleges and universities across the nation have criticized the Reagan and Bush administration for years for cutting federal funding to student financial aid programs. But under the new proposal, the maximum Pell Grant -- a need-based federal grant -- would nearly double to $4,500 a year from the current $2,400. And student loans, which students now receive through a cumbersome process involving banks and guarantee agencies, would come directly from the federal government to a student's college. Bipartisan support for adopting such a direct-lending approach is strong because the process would be simpler and cheaper, several congressional aides involved in drafting the bill said yesterday. The new system would save the federal government anywhere from $400 million to $2 billion annually, because the process would be more efficient and the federal government can borrow money at lower rates than banks. "There is a desire to make the system less complicated and more comprehensible to students," said Rick Jerue, an education advisor to Rep. Pat Williams (D-Mon.), who is a member of the postsecondary education committee. "It makes an awful lot of sense." Associate Vice President for Finance Frank Claus echoed support for the proposed change, calling the current method "a cumbersome process" that is "more of a hassle for students." A few critics have suggested that the Education Department may not be able to run such a huge program as efficiently as banks, which have a profit incentive not found in the government. But supporters counter that the government would have little difficulty overseeing the program, and discount the skepticism as a weak attempt to kill the proposal. But despite bipartisan agreement on loan redistribution, aides said Republicans and Democrats on the House Subcommittee for Postsecondary Education, which will draft the bill, are already divided over the plan to overhaul the Pell Grant system -- which will cost approximately $3 billion to $5 billion. Officials on both sides of the aisle agree that aid for middle class students must be increased since they are the students most often caught in a financial aid crunch and have been increasingly disregarded in financial aid packages. But they cannot agree whether the aid those students receive should be in the form of grants or loans. Aides say this key difference has developed into a debate that will likely persist until the bill goes to the House floor later this fall. One approach popular among some Republican congressmen would partially fund the increase in grant aid by making fewer students eligible for Pell Grant money, and expanding the student loan program to provide financial aid for those cut out of the Pell program. In short, fewer students would get more grant aid. But congressional staffer Jerue said this would eliminate eligibility for as many as 300,000 students currently receiving Pell Grants, and would force even more students to rely on loans to pay for college. Craig Overfield, a spokesperson for postsecondary education committee member Rep. Tom Coleman (R-Mo.), defended the plan as the only viable option given the current "economic reality" of budget deficits and fiscal restraint. But several Democratic congressmen have criticized the Republican proposal, arguing that grant funding must be increased in order to correct the "grant-loan imbalance." Mike Russell, a spokesperson for Rep. William Ford (D-Mich.), who chairs the postsecondary education subcommittee, said the congressman favors increasing Pell Grant eligibility to include students whose family's combined income is as high as $50,000. Students are currently eligible for grant money only if their family's income does not exceed about $30,000, according to Russell. He said in today's dollars, that income level "is next to nothing" when applied to the rising costs of college tuition. Russell admits expanding Pell Grants would require at least $3 billion more than is currently spent on grants. But he said if "we are serious about education" some funds would have to be cut from other federal programs, possibly including the defense budget, which he called a "juicy target." He added some of the costs could be offset by the money that streamlining the student loan distribution process is expected to generate. Claus said the increase in grant aid would make it less expensive for the University to meet the financial needs of some students, but added that increased loans, while less desirable than grants, would probably help a wider segment of the student body pay their college costs.

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