House panel approves increase in Pell Grants

Wednesday, July 22, 2009

WASHINGTON -- President Obama's plan to boost Pell Grants for low-income college students cleared the House education committee Tuesday, the first step down a long path through Congress.

The bill would link Pell Grants to inflation for the first time since the program's creation in 1972, raising the maximum grant from $5,500 to $6,900 over the next decade. House Democrats would pay for the increase by ending federal subsidies for private loans, an idea resisted by lenders who fear the loss of tens of billions of dollars and their supporters on Capitol Hill. The subsidies would be replaced by an expansion in direct loans from the government.

-- From wire reports

"We can either keep sending these subsidies to banks and a broken system, or we can start sending them directly to students," said California Rep. George Miller, chairman of the House Education and Labor Committee.

Last year, lenders made $56 billion in loans to more than 6 million students. By contrast, the government made $14 billion in direct loans to 1.5 million students.

The panel approved the measure on a mostly party-line 30-17 vote. Two Republicans, Reps. Thomas Petri of Wisconsin and Todd Russell Platts of Pennsylvania, joined Democrats in support of the bill.

Other Republicans criticized the bill as yet another expansion of the federal government.

The bill puts the government in near-total control of student lending, said Minnesota Rep. John Kline, senior Republican on the committee.

"We've already seen the federal government step in and take control of banks, insurance companies and even iconic American auto companies," Kline said.

As consumers, college students likely wouldn't notice any difference in their loans. Broadly speaking, the bill doesn't do much to make loans cheaper or help pay them off.

It does keep interest rates for some federal loans -- those based on need -- from jumping from 3.4 percent currently to 6.8 percent as scheduled in 2012. Interest rates for most other loans would remain at 6.8 percent.

It also would expand one of the government's smaller loan programs, college-administered Perkins loans, by offering it on more campuses.

Obama didn't get his way on one thing: The president wanted to take Pell Grants out of lawmakers' hands entirely, making the program a costly mandatory entitlement like Social Security and Medicare.

The biggest providers of student loans are: Reston, Va.-based Sallie Mae; Citigroup Inc.'s Stamford, Conn.-based Student Loan Corp. and Lincoln, Neb.-based Nelnet Inc.

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