Obama Proposes Sweeping Reforms to Federal Financial Aid Programs

As part of the 2010 federal budget submitted to Congress, President Barack Obama is proposing sweeping changes to the federal financial aid system that are meant to make college more affordable for U.S. families.

This reshaping of the Department of Education’s college finance programs would boost government grant aid and the amount of federal student loans available for the nation’s neediest students.

“Currently, our young people face too many financial and other hurdles to obtaining a college education,” said Secretary of Education Arne Duncan. “With the American Recovery and Reinvestment Act and the proposals announced today, we are taking several major steps to clear those hurdles.”

Federal Perkins Student Loans

As one provision of the submitted budget, the president has proposed restructuring and expanding the federal Perkins student loan program, which provides low-interest college loans to low-income students.

The expanded Perkins program would provide $6 billion in Perkins student loans each year, six times as much as the current yearly $1 billion.

The program overhaul would also do away with the decades-old formula the government currently uses to distribute Perkins aid to colleges and universities, a formula that the administration says tends to favor certain schools, as well as schools where tuition costs have continued to climb. The new system would instead apportion Perkins funds to reward institutions that provide more need-based financial aid to their students and that keep their tuition costs “reasonable … relative to other schools in their sector.”

Under the new system, Perkins funding would become available to more schools: The number of colleges and universities eligible to disburse Perkins student loans would more than double from the current 1,800 schools to 4,400.

Federal Pell Grants

Another provision of the proposed 2010 budget aims to guarantee a steady stream of annual funding for the federal Pell Grant program by exempting it from the discretionary budget process. Thus exempted, the Pell Grant program would receive mandatory funding every fiscal year, just like Social Security, Medicare, and other government benefits programs.

To ensure that Pell Grant awards keep pace with inflation, maximum Pell Grant limits, beginning with the 2010–11 academic year, would become tied to cost-of-living indicators, determined by the consumer price index plus 1 percent.

This shift in Pell Grant policies alone, said Terry Hartle, vice president of the American Council on Education, represents “the biggest change” to federal financial aid programs since the passage of the very first Higher Education Act in 1965.

With these education spending proposals, added Education Secretary Duncan, the Obama administration is “ensuring that higher education is affordable and accessible for all of our young people.”