The United States House of Representatives on Sept. 17 passed legislation that overhauls the financial aid system by removing subsidies from private lenders and shifting to direct federal lending.

The Student Aid and Fiscal Responsibility Act (H.R. 3221) will save $87 billion in the next 10 years, supporters said. It will also expand Pell Grants by increasing the maximum award from $5,350 to $5,550 in the 2010-11 fiscal year and to $6,900 by 2019.

The bill authored by U.S. Rep. George Miller, D, Calif., chairman of the House Education and Labor Committee and passed with a 253-171 vote.

California State University Chancellor Charles Reed addressed the committee on May 19 about the necessity of Pell Grants.

“As the most need-focused federal financial aid program, strengthening Pell is essential to closing the gap in college enrollment and completion that exists between low-income students and their affluent peers,” Reed said.

The legislation would eliminate the Federal Family Education Loan (FFEL) program by June 2010 and subsidized Stafford loans to graduate and professional students by July 2010. It also allots $6 billion annually beginning in 2010 for a new Federal Direct Perkins Loan program.

Reed said CSU campuses see direct lending as more advantageous than the FFEL.

“Students and the university must deal with multiple lenders, servicers, third-party systems for loan processing (and) guarantors,” Reed said in his statement.

In the current system, the CSU provides federal student loans through the Federal William D. Ford Direct Student Loan and the FFEL.

The legislation invests $2.55 billion in historically black colleges and universities and minority-serving institutions. It also invests $3 billion for college access and completion programs and $10 billion in community colleges.

For Ladamia King, freshman science major, having subsidized lenders not involved in receiving loans is a welcome option.

“I think it’s good that it’s coming from the government instead of a private lender,” said King. “It just feels safe if it comes from the government.”

King hasn’t received her student loan funds for fall 2009. She said she’s been coming back to the Financial Aid Office.

“They might drop my classes because I haven’t paid my fees,” King said. “When I applied for spring 2009, it didn’t take this long.”

The legislation would also make the Free Application for Federal Student Aid (FAFSA) form simpler by eliminating asset-related questions.

Not all students are impressed with loans directly from the government. Albert Lin, junior accounting major, prefers having private lenders to give out loans to students.

“It’s better if the private lenders are retained to keep competition and keep interest rates lower,” Lin said. “If (the) government has control, students have no choice but to borrow from the government.”

Kristine Guerra can be reached at [email protected].