Major Changes Coming to the Student Loan Industry

A House commitee cleared a bill last Tuesday that would all but remove private lenders from the federal loan industry. If passed, The Student Aid and Fiscal Responsibility Act of 2009, will do away with private loans subsidized by the federal government, which in turn will save the government $87 million over the next 10 years.

Democrats plan to use the savings to fund a $40 billion increase in federal Pell Grant scholarships over 10 years, $10 billion in community college upgrades and $8 billion in pre-kindergarten changes, among other uses.

Across the aisle, opposing Republicans see the Act as a federal takeover of the student loan industry.

The Student Aid and Fiscal Responsibility Act of 2009 will now go before the entire House for a vote. If approved by the House of Representative's Democratic majority, the Senate will vote whether to enact the Act into law.

The restructured student loan component of the Act will increase the maximum annual Pell Grant scholarship from $4,731 last school year to $5,500 in 2010-11 and $6,900 in 2019. Starting in 2011, the annual grant would be linked to cost-of-living increases.