President Barack Obama's bailout package, the American Recovery and Reinvestment Act, includes help for students to get into college and stay there even in an economy in which many of their parents are losing their jobs.
At the same time, his new budget would end the feeding spree for private lenders that was the student loan business under the Bush administration.
Pell grants, the welcome handouts that have already sent millions to college but that have so fallen behind the real costs of tuition that the aid they offer now seems more symbolic than real, have been raised under the ARRA. In the 1970s, Pell grants paid 77 percent of the expenses of students who attended public colleges; now they pay 35 percent or less. Currently, about 7 million students get them.
The ARRA raised the maximum Pell grant ($4,731 in 2008-09) to $5,550 in 2010-11 and $5,750 in 2011-12. Under the budget, continued rises in their value would be assured because the budget would link them to the Consumer Price Index plus 1 percent.
The new budget would also establish a $6 billion program specially designed to help students whose financial picture changes while they are in college—because of the loss of a parent's job, for example. And $2.5 billion would be allocated over five years to subsidize college student retention programs that have proved to be effective.
Meanwhile, the budget would save $4 billion a year, according to estimates by the White House Office of Management and Budget, by ending subsidies to lenders and offering loans through the federal Department of Education, a measure that has long been recommended by consumer advocates but that the lending industry is fighting fiercely.
The change is being made to reduce costs, eliminate the potential for the payoffs and conflicts of interest that have tainted the student loan industry, and prevent the sudden shortages of student loan money that followed the credit crunch last year. The loans would still be serviced by companies in the private sector.
