WASHINGTON -- Today, a bipartisan group of lawmakers introduced new legislation to boost college scholarships without costing taxpayers a dime. Senators Edward Kennedy (D-MA), Chairman of the Senate Health, Education, Labor and Pensions Committee, Senator Gordon Smith (R-OR), Rep. George Miller (D-CA), Chairman of the House Education and Labor Committee, and Rep. Tom Petri (R-WI) unveiled the bill, the Student Aid Reward Act (STAR).

The nonpartisan Congressional Budget Office estimates the bill would generate a savings of $13 billion by encouraging colleges and universities to use the less expensive of the federal government's student loan programs. The STAR Act would reinvest at least $10 billion of that in additional Pell Grant scholarships and graduate fellowships.

Rep. Petri said, "The fact is, our subsidies to private lenders are so excessive that we can save the taxpayers a lot of money while providing a better deal for students simply by encouraging the use of the more efficient student loan program. The opponents of this legislation have a lot of government subsidized money to use against us in order to protect their gravy train, but I'm confident that any objective observer will come to the right conclusion."

Rep. Petri at the STAR Act press conference. Behind him is Matt Guidry, a UW-Stevens Point student who came to lend support as a representative of Wisconsin Public Interest Research Group (WISPIRG).

Senator Kennedy said, “Our plan is good for students and colleges, regardless of which loan program they use. The plan encourages competition, it helps students, and it has no cost. It’s time to inject some real competition into the loan programs, so that they help students—not banks.”

"Higher education is essential to success in a competitive global economy. Oregon students, and those across the country, deserve as affordable an education as possible," Senator Gordon Smith said. "My colleagues and I are working to improve the federal student loan system to give more money to students to invest in their futures."

"One of our top priorities in the new Congress is to ensure that every qualified student can afford to go to college. The Student Aid Reward Act is a win-win bill that will put billions of dollars into scholarships for students at no new cost to taxpayers," said Miller, the Chairman of the House Education and Labor Committee. "We promised to make college more affordable and we promised to restore fiscal responsibility to the Congress. This legislation is about good, responsible government that meets the key concerns of America's middle class."

Currently, there are two main student loan programs that offer loans to students at the same terms and interest rates: the Direct Loan program and the Family Federal Education Loan (FFEL) program.

Independent analyses by the Congressional Budget Office, the Office of Management and Budget, and the Government Accountability Office have all demonstrated that the Direct Loan program is much less expensive than the FFEL program because in the FFEL program, the government underwrites and subsidizes the loans private lenders issue to students. By contrast, the Direct Loan program provides loan capital directly from the U.S. Treasury and eliminates lenders as middlemen, cutting out billions in unnecessary subsidies to banks.

The STAR Act generates additional Pell Grant aid by creating fair, market-based competition between the Direct Loan and FFEL programs. It rewards colleges that choose the federal loan program that is less expensive for the government and taxpayers by giving a portion of the savings generated by that choice back to the colleges in the form of Pell Grants.