January 12, 2005

WASHINGTON -- A bipartisan bill to help students and their families pay for college would boost funding for Pell scholarships by $12 billion over the next 10 years at no additional taxpayer expense, according to a recent analysis by the nonpartisan Congressional Budget Office.

"The CBO has confirmed what I have been saying for years," said Rep. Thomas Petri (R-WI), House Education and Workforce Committee Vice Chairman. "Our student loan program is awash with big subsidies for private banks that are completely unnecessary. If we stop subsidizing banks and just provide the loans directly from the U.S. Treasury, we could free up billions of dollars to be used for Pell scholarships."

"At a time of rising college costs, skyrocketing college debt and huge federal budget deficits, Congress cannot afford to pass up the opportunity to provide deserving students with an extra $12 billion in college aid," said Rep. George Miller (D-Calif.), the senior Democrat on the committee. "This proposal would help make college affordable for millions of hard working students."

Petri and Miller coauthored the bill, called the Direct Loan Reward Act. If a majority of schools took advantage of the legislation, then annual Pell scholarships could be boosted by more than $1,000 per student. Last year's maximum Pell scholarship was worth nearly $800 less, in real terms, than was the maximum scholarship 30 years ago.

The bill works by providing colleges and universities with incentives to use the Direct Loan program in favor of the more expensive Federal Family Education Loan (FFEL) program to make college loans to students. The Direct Loan and FFEL programs are the main federal student loan programs. The federal government makes loans available directly to students in the Direct Loan program. In the FFEL program, private lenders - backed by government subsidies and guarantees - provide the capital for student loans.

Under the Petri-Miller bill, when colleges switch from the FFEL program to the Direct Loan program, savings are achieved by cutting out the middleman, since both programs offer the same loan terms to students. The bill will encourage schools to participate in the Direct Loan program by giving them half of the savings it would generate to provide additional Pell scholarship money to low- and moderate-income students.

The CBO $12 billion estimate is conservative, however. It assumes that Direct Loan volume would gradually increase to 40 percent of loan volume from its current 25 percent. But if all schools switched to Direct Loans, the increase in student aid could be at least five times greater, or $60 billion, over the next 10 years.

CBO Director Douglas Holtz-Eakin recently told Gannett News Service reporter Brian Tumulty: "We have a more generous subsidy in the private sector loans. We have subsidies to the student plus to the lender. And the net effect is that if we went under current law to the direct student loan program, we'd save money basically because we'd subsidize those loans less heavily."

"This bill is about helping students go to college; it's about building a workforce that keeps America competitive for generations to come; and it's about smarter, better government," said Miller. "Those are goals that every American can support."