Durbin: Student Loan Overhaul Makes College More Affordable For Illinois Students

[CHICAGO, IL] – Illinois students will see increased Pell Grants and friendlier loan repayment terms as a result of a historic overhaul of the nation’s 45-year-old student loan program signed into law last week, U.S. Senator Dick Durbin (D-IL) told college students at Roosevelt University today.
The provisions, included in the Health Care and Education Reconciliation bill, force commercial banks out of the business of administering federally-guaranteed student loans, ending a system dating back to 1965 which provided commercial banks like Sallie Mae guaranteed federal subsidies to lend money to students, with the government assuming nearly all the risk. As the largest originator of federally insured student loans, Sallie Mae flourished through the risk-free business of federal student loans, reporting a profit of $309 million in the last quarter of 2009 alone.
The bill shifts all student loans into the Direct Loan program. Starting in July 2010, students will have the assurance that they can take out a Direct Loan from the federal government through their college’s financial aid office instead of being forced by the college to use a private bank for a guaranteed student loan.
“We’re cutting out the middlemen and using the federal dollars we save to make college more affordable for 8.5 million more students,” Durbin said.
Today, approximately 265,000 Illinois students use Pell Grants to help pay for college. As a result of student aid overhaul, Illinois will receive an additional $313.5 million for raising the maximum annual Pell Grant scholarship to $5,550 in 2010 and to $5,975 by 2017, and for helping to fund an additional 23,720 Pell Grants for Illinois students.
The student loan reform bill includes:

  • $36 billion over 10 years for Pell Grants, including $22.6 billion to increase the maximum award to keep up with inflation and $13.5 billion to close this year’s Pell shortfall;
  • $1.48 billion to strengthen the Income-Based Repayment program, allowing borrowers to cap monthly student loan payments at 10% of discretionary income (currently 15%) and for any remaining balance to be forgiven after 20 years of repayment (currently 25 years).   Goes into effect in 2014;
-  A borrower with $40,000 in student loans and an adjusted gross income of $30,000 a year could see their monthly payments drop from $172 in the current income-based repayment plan to $115 a month. This compares with $460 under standard ten-year repayment;
-  Public service workers – such as teachers, nurses, and those in military service – will see any remaining debt forgiven after 10 years.;
  • $2 billion for a competitive grant program for community colleges to develop and improve educational or career training programs;
  • $2.55 billion ($39 million in Illinois) to Historically Black Colleges and Universities and Minority-Serving Institutions; and
  • $750 million ($23 million in Illinois) for College Access Challenge Grants.

Change was needed, Durbin said, because students are burdened with an often unmanageable load of debt after graduation. Over the past five years, the combined cost of tuition, fees, room and board at a public four-year college has increased 42 percent—far outpacing inflation and growth in income. Federal financial aid has not kept pace. Thirty years ago, a Pell Grant could cover 77 percent of public college costs. Today, it covers 30 percent. To fill in the gap, more students have taken out student loans to afford college. In the early 1990s, not quite one-third of college graduates had loan debt. Now, more than 70 percent do, at an average of over $20,000 per student.
“Over the course of this recession, lost jobs and financial uncertainty have touched families across Illinois, especially families with kids going to college,” Durbin said. “These tough times make it harder for students to afford a college education. The increase in Pell Grant funding will help narrow the gap between the value of a Pell Grant and the cost of higher education and ease the burden faced by students and their families.”
“Placing increased resources in education now provides a boost to our economy and acts as an investment in our nation’s economic future,” Durbin said.