On Sunday, alongside the passage of the health-care bill, House Democrats attached an amendment that aims to fund government lending to students by substantially decreasing federal subsides on private loans.
The federal government has subsidized private student lending since 1965 and began lending directly to students in the 1990s. The movement to end the subsidies is rooted partly in allegations of past corruption: In 2007, the private lending industry was assailed for overcharging the government and offering colleges incentives to steer students to their loans. Although subsidized lending has faltered in the sour economy, the industry has fought eliminating the program, led by Reston-based SLM Corp., better known as Sallie Mae.”
The decrease in federal subsides saves $61 billion over the course of 10 years; over half of those savings will be channeled to students through Pell grants, a federal program that provides financial assistance to low-income qualifiers. Pell grants are paid directly to the degree-granting institution or the student recipient and do not require re-payment.
The Pell grant gets its name from U.S. Senator Claiborne Pell, of Rhode Island, who created the program in 1973. Today 48 institutions in Rhode Island accept Pell grants, including Providence College, Brown University, the University of Rhode Island and RISD.
A study from 2003-2004 shows that an increase in the Pell grant award amount, which essentially decreases tuition, had the effect of increasing the number of low-income students attending participating institutions. But the middle-men will be put out of work, and they’re not too happy.