Financial Aid Reform (Or Not)?

So, I am not quite sure what to make of the “Student Aid and Fiscal Responsibility Act,” a bill passed yesterday by the U.S. House of Representatives. The legislation - which is apparently expected to sail through the Democrat-controlled Senate and then be signed into law by President Obama - would make the federal government the sole source for federal student loans as of July 1, 2010.

Under the bill, private lender would no longer receive federal subsidies for providing federally guaranteed student loans. This change would free up an estimated $80 billion over 10 years, half of which would go towards Pell grants for low- and moderate-income students. (The maximum Pell award would increase from $5,350 per student this year to $6,900 by 2019.)

For all the legislative details, you can check out this Washington Post article or this one by the New York Times.

The House’s vote, 253 to 171, was largely along party lines, with the Democrats saying that students would benefit from direct lending because the government offers a more reliable source of capital for loans than do private banks. Republicans, meanwhile, portray the legislation as an intrusive government action that will lessen consumer choice.

What are your thoughts on this bill; do you think it’s good, bad, or are you indifferent?

I asked a friend, who works in financial aid and knows a lot more about these matters than I do, for his opinion. I had to laugh at his somewhat sarcastic response: “The bill will cut $80 billion of wasteful spending to the money-grubbing banks over the next 10 years, and the benevolent administration will funnel that money back into grants and other programs to aid needy students rather than line the pockets of evil bankers.” (I’ll let you guess his political leanings.)

I haven’t decided if I agree with his sentiments or not. However, I am sure of one benefit of the new legislation - a simpler FAFSA. Several years after the fact, I still have nightmares about trying (and failing) to fill out the Free Application for Federal Student Aid, which the New York Times aptly described as “a notoriously complicated form that asks students seeking financial aid for college as many as 153 questions.” If you haven’t checked out the Times’ article about this bureaucratic headache, here’s the link … happy reading!