Basic Facts You Need to Know about the Student Aid and Fiscal Responsibility Act of 2009
January 3rd, 2010
On September 17, 2009, the House of Representatives passed the Student Aid and Fiscal Responsibility Act of 2009 (SAFRA), a student aid bill that constitutes a large and unprecedented investment in higher education in the United States. The bill, which is based on one of President Obama’s key objectives, to help more students have access to higher education, introduces far-reaching reforms of the federal student loans systems and could generate savings of as much as $100 billion.
The Senate is presently preparing its version of the bill. The House and Senate must agree on a single version before SAFRA can be signed by the President. Senate action on the Student Aid and Fiscal Responsibility Act, however, was delayed by other legislative activity, most important of which is health care reform (in the Senate, the same committee has jurisdiction over health care and approves education bills). The Senate is now expected to introduce its version of the SAFRA bill sometime this month. Below is a brief presentation of the main points included in the bill passed by the House this past September.
• The bill increases the maximum Pell Grant, a need-based grant that helps low income students meet the rising cost of higher education. This not a student loan but a federal grant and the bill states that as of 2011, future increases to the Pell Grant will be linked to match rising costs-of-living by indexing it to the Consumer Price Index plus 1 percent. The potential Pell Grant award will be increased from $5,350 in 2009 to $5,550 in 2010 and $6,900 in 2019.
• SAFRA also aims at providing $10 billion in increased funding to assist community colleges to increase enrollment. Although the majority of students are enrolled in community colleges, the colleges lack resources and the increased funding is designed to modernize community college facilities and draw up an improved national on-line curriculum program.
• Probably the most important reform called for by the Act is the elimination of the Federal Family Education Loan (FFEL) program which provides government subsidies to private lenders for student loans. The four components of the FFEL are Stafford Loans, Unsubsidized Stafford Loans, Federal PLUS Loans, and Federal Consolidation Loans. It’s been estimated that by ending the FFEL program and cutting excessive lender subsidies, up to $87 billion in federal student aid will be made available (over the next 10 years) and used to provide direct student support. SAFRA mandates that all new federal student loans will originate through the Direct Loan program starting in July 2010.
• The SAFRA Act passed by the House will also increase funding for historically black colleges and universities and other minority-serving institutions by $2.55 billion to continue efforts initiated in 2007 to fund programs aimed at encouraging students attending these schools to enter fields in the areas of Science, Technology, Engineering and Mathematics.
• The Act also invests $1 billion each year in competitive grants to help states improve early learning programs for children from birth to age five.
• In addition, the Act also aims at keeping interest rates on federal student loans more affordable, will also simplify the entire FAFSA loan process (Free Application for Federal Student Aid) and invest $6 billion to reinforce the Perkins Loan Program (an affordable campus-based loan program) to reduce the number of students obliged to take out private loans.
If the final version of the new Student Aid and Fiscal Responsibility Act maintains most of the above, it would certainly increase the number of students who are able to access higher education by simplifying the student loan process and making it a little more affordable. But reforming the student lending process does not stem the rising cost of higher education in the United States, which is the real root of the problem.
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