Senate Votes to Expand Student Loan Programs

The Senate voted Friday to expand federal student aid programs for middle-income families, while moving simultaneously to reduce the rising number of defaults on government-backed student loans.

By a 93-1 vote, the Senate approved legislation that would raise the limits on federal Pell grants to $3,600 per student beginning Oct. 1, from $2,400 now, and would make them available to families earning up to $42,000 a year, up from $30,000.

To help keep pace with soaring tuition costs, the measure also would increase the limits on federally guaranteed student loans, known as Stafford loans, to a maximum of $23,000 for four years of undergraduate education, up from $17,250.

The legislation is an authorization bill and Congress must pass a separate appropriation bill before the money can be spent. The House is working on its own version of the Senate measure.

If lawmakers ultimately appropriate the full amount, the Senate legislation would pave the way for an increase of $5.5 billion in the $12 billion a year that the federal government now spends to help finance higher education.

At the same time, however, liberals lost a battle to turn the Pell grants into a federal entitlement program, under which Washington would be obliged to accommodate all applicants who qualify for such aid. The proposal failed after Republicans, backed by the Bush Administration, argued that making the aid effort an entitlement program would impede broader efforts to impose budget discipline on federal outlays.

The new measures to help crack down on defaults would mark an escalation in the government’s growing war on loan losses, which have climbed to a net 10.3% and are costing the government $3.6 billion a year.

Essentially, they would require state authorities, who administer the student aid program on a day-to-day basis, to ride herd over educational institutions that have amassed large numbers of student defaults.

Schools with default rates of 25% or higher would no longer be eligible to participate in federal aid programs. And short-term proprietary schools and correspondence schools, which traditionally have had higher default records, would be barred entirely.

The package of enforcement measures was cut back during floor debate. Initially, the Senate Labor and Human Resources Committee had sought to require states to review all schools now participating in federal student aid programs, whether or not they had adverse records.

Even so, the new rules are likely to prove controversial. Analysts said that they probably would bar participation by many community colleges and historically black schools, where default rates traditionally are higher than among students at four-year universities.

The portion of the legislation expanding eligibility for student aid programs also contained a provision designed to end the practice of forcing families to include the value of their homes or farms in seeking to qualify for grants or loans.

Under the bill passed Friday, applicants could omit the value of homes and farms in listing their family income. The measure also would provide for simplified application and processing forms for would-be borrowers.

The measure also would provide $200 million for a new program to help identify potential high school dropouts and take steps to help persuade them to remain in school. And it would authorize new efforts to beef up teacher recruitment.

Sen. Edward M. Kennedy (D-Mass.), chairman of the Labor and Human Resources panel, hailed approval of the legislation, saying that it would give “millions more students the financial help they need to pursue a college education and achieve their full potential.”