Congress passed new legislation on March 21 that will take private banks out of the student loan market. The government will provide all student loans instead of banking institutes like College Foundation of North Carolina, Sallie Mae and other commercial banks.
The United States government has been subsiding commercial banks to give out student loans. Through this process the government would provide the capital and assume a majority of the risk while commercial banks would hand out the loans to the students and gain a fee from the government.
Jake Bloodworth, chair of Tuition and Fees Committee in the N.C. State’s Student Senate, said he believes the program is important to students.
“I like the idea of the program because I think it is important,” Bloodworth said. “Financial aid is hurting and more students are applying for financial aid and parents are losing jobs. I think that it is important that if we can cut out a middle man, I think it is something we should do.”
According to the bill, subsidized payments that would be given to the commercial banks willbe put back into the Pell Grant program and funding for community colleges as well as allow students to easily pay back their student loans.
The Congressional Budget Office estimated that the savings from this bill will be in the area of $61 billion. Some of these savings will be used to fund the objectives of the bill.
Julie Rice Mallette, associate vice provost and director of the Office of Scholarships and Financial Aid, said the changes would save the federal government money.
“In the long run probably having the Federal Direct Loan Program as the only loan choice will save the federal government money,” Mallette said. “If they turn around and use these savings and increase the funding of the Federal Pell Grant program, other education initiatives that will improve access for students then that will be a good thing.”
Mallette said one of the key measures of this bill would be the influx of money into the Pell Grant program. Out of the $61 billion in savings, $36 billion will go to Pell Grants. She said if this money had not been put into the Pell Grant program, it is possible that the Pell Grant would have decreased.
The bill will increase the maximum amount of the grant to $5,500 for the 2010-2011 school year and rise to $5,900 by the 2019-2020 school year. However, with the higher costs of obtaining an education, the grant increases may not be enough.
Mallette said the buying power of the Pell Grant is clearly not what it used to be. An increase that will go forward now will not be as great an increase — it will not keep up with college costs.
With the rough economy during the past two years, this should be some relief for some students in need of financial aid, but the increase in funding may not be enough for N.C. State.
According to Mallette, the Financial Aid applicant pool for the 2008-10 school years saw an increase of 31 percent. For the upcoming school year she said that the financial aid was already above where we were the same time last year in terms of number of students applying for aid.
“The demand is clearly there, and the need is clearly there. We need to make sure that resources keep pace with the demands,” said Mallette.
The pace of resources has been tough for the University, Mallette said. By increasing the Federal Grant program, some grants and scholarships that are offered this year will not be offered subsequent years down the road.
Mallette discussed an example of a $3 million short fall of some funding that will not be there this year. While this legislation is good for the Pell Grant program, it will not be a boom for the financial aid office with smaller endowments and scholarships coming in.
