Oregon college leaders and students widely support legislation that
would cut banks out of the federal student loan business, saying the
change will help low-income students, bolster community colleges and
make it simpler for students to borrow money.
The plan to overhaul student loan programs is included in the health care reconciliation bill that passed Sunday in the U.S. House and is under debate in the Senate.
The changes will make college more affordable for more students, said Getachew Kassa, 22, a University of Oregon senior who marched with several hundred other college students in Washington, D.C., on Tuesday in support of the bill.
"In Oregon, tuition is increasing, and we are basically getting less for more," said Kassa, vice president for UO student government and board member of the United States Student Association, which had a legislative conference in the nation's capital this week. "This is just one step in making higher education more accessible."
The loan legislation would eliminate banks as subsidized intermediaries in administering federal loans and require students to borrow directly from the government. Banks can continue to make private student loans.
This year, students attending Oregon public and private universities, colleges, trade schools and community colleges have borrowed about $1.5 billion from the federal government, according to the Oregon Independent Colleges Association.
The student loan bill is estimated to save taxpayers $61 billion over the next 10 years.
Of that, $36 billion would be used to bolster the federal need-based Pell Grant scholarship program, including $13.5 billion to fill a shortfall created by unexpected demand. Oregon public and private college students have received about $210 million worth of Pell Grants this year.
Private lenders lobbied against the student loan bill, questioning how much it would save. In a statement, their professional group, America's Student Loan Providers, wrote, "Congress should not be eliminating a program that serves millions of families and employs tens of thousands."
Oregon's public universities, however, have been preparing for the change. All seven state universities have shifted or will shift to using only direct loans from the government for financial aid, said Joe Holliday, vice chancellor for student success initiatives. Most of the state's private universities also are making the switch, said Gary Andeen, president of the Oregon Independent Colleges Association.
Universities have discovered the federal direct loan program "does very well without the middleman," said Dennis Johnson, executive director of the Oregon Student Assistance Commission, which manages the need-based Oregon Opportunity Grant scholarship program.
The student loan bill would boost the maximum Pell Grant by $200 to $5,550 for next school year and to $5,975 by 2017.
"It does help us stretch our state dollars a great deal when the Pell Grant increases," Johnson said.
The shift to direct federal loans also simplifies the financial aid process for families, students and administrators, college officials said.
Students sometimes have had problems repaying bank loans because the deals have been sold and repackaged with other loans, university officials said.
"The piece of paper would be sold to a secondary market, and we'd have students who could not tell you who they were repaying," said Elizabeth Bickford, financial aid director for the University of Oregon, which switched to using only direct government loans more than 15 years ago.
The loan bill also would make federal loans more affordable for borrowers to repay by reducing monthly maximum payments from 15 percent of discretionary income to 10 percent after 2014.
It provides $2.5 billion to support students in historically black colleges and universities. In addition, it devotes $2 billion to a competitive grant program for community colleges.
It is unclear how much of that $2 billion will flow to Oregon, but whatever it is will "give us targeted money for specific initiatives we may have in place," said Krissa Caldwell, deputy commissioner for the state Department of Community Colleges and Workforce Development.
Increases in Pell Grants may be the bigger benefit for Portland Community College, said PCC spokesman Dana Haynes.
Almost all PCC students are eligible for Pell Grants, he said, and 40 percent of them are parents. Even a $500 annual increase in the Pell Grant, he said, makes a big difference for them.