On March 30, at Northern Virginia Community College, President Obama signed the Health Care and Education Reconciliation Act. The bill contained massive reform initiatives aimed at two of the nation’s most significant cultural and business sectors. Throughout the bill’s approval process, the spotlight typically favored components in the health care portion rather than the sweeping postsecondary changes. President Obama acknowledged this uneven distribution of attention in his address in Northern Virginia.
“But what’s gotten overlooked amid all the hoopla, all the drama of last week, is what happened in education,” the president told an audience at the NOVA campus in Alexandria. The bill is actually the new face of the Student Aid and Fiscal Responsibility Act (SAFRA). What happened can be organized around four major thematic changes to the way students finance their education and the way certain types of institutions sustain relevant and worthwhile programs.
Ending FFEL, Increasing Pell Grants
Previously, federal education loans originated from two primary sources. They were referred to as the Federal Family Education Loan Program (FFEL or FFELP) and the Direct Loan Program. FFELP depended on banks and other financial institutions to fund its student loans, while Direct Loans came straight from the federal government. Prior to 2008, the FFEL program had been experiencing a higher growth rate than that of the Direct Loan program, according to the Website FinAid.org.
The passing of the Health Care and Education Reconciliation Act effectively abolished FFELP, transitioning all future federal student loans to the Direct Loan program. The recessionary market volatility that preceded the bill likely provided some inspiration for FFELP’s deconstruction. Many lenders who previously sought funding from capital markets began turning to the federal government during the credit crisis, FinAid reports. The FFEL program also lost one of its advantages, with lenders forced to cut their discounts to students.
Pennsylvania State University recently switched from FFELP to Direct Loans. "The reason that we went on ahead and moved into the Direct Loan program at that particular time was just watching what was happening as a result of the downfall in the financial markets and the announcement of a number of lenders that they would no longer be lending under the FFEL program," said Anna Griswold, Assistant Vice President for Undergraduate Education and Executive Director for Student Aid at Penn State.
Previously, Penn State had relied on the Pennsylvania Higher Education Assistance Agency (PHEAA) to supply many of its student loans. When PHEAA decided to stop participating in FFELP, Penn State turned to the Direct Loan Program to protect their student borrowers. "We felt that would enable them to stay with one lender and not worry whether or not a lender they may have chosen would be leaving the program," Griswold said.
By using the Direct Loan program, colleges will now have to work with only one lender: the federal government. The transition to Direct Loans is furthered paved by the ability of financial aid administrators to use the same Common Origination and Disbursement (COD) system that is used for the Pell Grant program.
Other preexisting features of the Direct Loan program include:
- Public Service Loan Forgiveness
- Consolidation Loans
- Ability to change repayment plans at any time
- Flexible repayment plans
- Loans are not sold to other lenders
According to estimates from the White House, the switch to Direct Loans will save $68 billion by 2020. Those savings will help boost the maximum annual Pell Grant from $5,550 to $5,975. Increased funding for the program will also help address the increase in demand for the grants. In the past, the Pell Grant program has suffered from funding shortfalls, and with adverse economic conditions, many students have decided to return to school and seek out the grants. With the passing of this bill, the program will benefit from a doubling of available funds and increased stability.
College access and completion programs
The College Access Challenge Grant (CACG) Program organizes partnerships between federal, state and local governments and philanthropic organizations to help low-income students pursue a postsecondary education. The Health Care and Education Reconciliation Act will make $750 million available for these grants, which sponsor the following types of programs:
- Distribution of informational materials to students and families about postsecondary and career options
- Financial literacy and debt management
- Outreach activities
- Assistance with Free Application for Federal Student Aid (FAFSA)
- Need-based Grant Aid
- Professional development opportunities for secondary and middle school counselors, financial aid administrators and college admission counselors
- Student loan cancellation or repayment or interest rate reductions for borrowers who are employed in a high-need geographical area or a high need profession
The Minnesota Association for College Admission Counseling (MACAC) worked with government officials to incorporate the college planning software program Naviance into underserved districts throughout the state. "Our part certainly impacts low-income students because many of the schools that are purchasing the software wouldn’t be able to do it otherwise without this grant,” said Marlene Mohs, Associate Dean of Admission at St. Catherine University and a past president of MACAC.
CACG funds enable educators and community members to develop projects previously abandoned due to a lack of funds. "When this grant came along, it fit in perfectly with the plans that we were already trying to implement,” Mohs said.
David Tandberg, special assistant to the secretary of education in the Pennsylvania Department of Education, used CACG funds to work with a program called Project Grad. "We targeted several very low-income, very challenged school districts and used Project Grad to bring in people that were full-time, on the ground in those districts that would focus on college access activities and also some academic enrichment activities,” Tandberg said.
Tandberg outlined one of the prime directives of the program. "We have, I think, a moral obligation to help these students," he said. "It doesn’t mean that they all have to go to college, but going to college should be a real opportunity for them."
Income-Based Repayment
Additional money will be reserved for a pre-existing loan tool called Income-Based Repayment. This program was designed to help low-income earners manage their repayment plans by reducing their monthly payments according to their relative position to the poverty line. Previously, the payments were capped at 15 percent of the borrower's discretionary income. With a $1.5 billion boost from the Health Care and Education Reconciliation Act, the new threshold will be 10 percent after 2014.
A calculator is available online from IBRinfo to help borrowers determine their eligibility.
The program relies on information like income and family size to determine if the borrower has a required “partial financial hardship.” The program is only available for non-defaulted federal loans made through the Direct Loan Program.
Support for Community Colleges and Minority Serving Institutions
The Obama Administration has promised to make the U.S. the world leader of college graduation rates by 2020. To help accomplish that goal, funds were set aside in the Health Care and Education Reconciliation Act to aid community college programs and minority serving institutions. The bill has set aside $2 billion over the next four years for community colleges and $2.55 billion for minority serving institutions.
The nation’s community colleges appeared on the president’s radar because of their ability to enroll six million students who can take advantage of affordable tuition, open enrollment policies, flexible course schedules, and convenient locations. The funds have been allocated for community colleges and career training in general, but the White House has offered some recommendations for effective use of the money, including:
- Partnerships with businesses to create career pathways
- Partnerships with other educational institutions to create a more facile transfer process
- Reinforcement of basic skills and adult educational programs
- Aid for college counseling programs that help students plan their careers, stay in school and graduate
- Development of more online offerings
With Historically Black Colleges and Universities and other minority serving institutions serving almost 60 percent of the nation’s minority undergraduates, their network of quality institutions, which account for nearly one-third of the nation’s degree-granting institutions, have also been targeted for increased funding. The money will be used to renew, reform and expand these institutions, which have been enrolling middle and low-income students.
For more information on the impact of the Health Care and Education Reconciliation bill, visit the podcast page.