Both houses of Congress have passed H.R. 2669, the College Cost Reduction and Access Act. When it is signed by the president, the new law will redirect taxpayer subsidies away from student loan companies and toward increased grant aid and improved benefits for borrowers. Key provisions in the bill include:
- Pell Grant increase – Lower-income students increasingly have had to rely on loans because need-based grant aid has not kept pace with college costs. H.R. 2669 provides enough additional funding to increase the maximum federal grant from the current level of $4,310 to $5,400 in 2012.
- Income Based Repayment – Modeled on our Plan for Fair Loan Payments, this program assures past, present and future students with federal loans that their payments will be fair and manageable and will not extend indefinitely (more info).
- Interest rate cut – The bill phases in a reduced interest rate on new subsidized Stafford loans to undergraduate students. From the current 6.8 percent, it would be reduced to 6.0 percent starting July 2008, 5.6 percent starting July 2009, 4.5 percent starting July 2010, and 3.4 percent starting July 2011. In July 2012 it would revert to 6.8 percent.
- Loan forgiveness for public service – Borrowers who spend at least ten years working in public service profession and make income-based payments through the Direct Loan program would be able to have any loan balance that remains after ten years forgiven. See a full list of eligible professions.
Only loans backed by the federal government are affected by H.R. 2669. The growing private (non-federal) loan market, which represents about a fifth of all student loan volume, is not directly affected by this legislation. (See our Private Loan Policy Agenda.)