A bill passed by the House of Representatives will increase the maximum Pell Grant by hundreds of dollars but will change Federal Perkins Loans so that loans will begin accruing interest while student-lenders are still in school.

The measure, passed Sept. 17 and known as the Student Aid and Fiscal Responsibility Act, will oust private lenders from the federal college loan business and require all schools to switch to the federal Direct Loan Program by July 1, 2010.

Direct Loans are low-interest federal loans for students and parents that help pay for the cost of a student’s education. The lender is the U.S. Department of Education — rather than a bank or other financial institution.

The bill will now move to the Senate where it is expected to pass.

Larry Chambers, director of student financial services, said he is not convinced the removal of private lenders will result in substantial benefits for students.

“Having both direct lending and the Stafford Loan programs has fostered competition, enhanced services and provided students with choice,” Chambers said. “With only one lender — the federal government — students will no longer have a choice of a lender.”

Chambers said new changes being made to the Federal Perkins Loan will leave college students with more loans that begin accruing interest immediately.

Freshman Adam Melnick said loans that immediately start building interest, often known as unsubsidized loans, make life harder for students.

“We’re not making real money as undergraduates, so it’s hard to chip away at what we owe,” Melnick said. “Then when we graduate, the interest has already blown our debt through the roof.”

Proponents of the bill, however, point to the introduction of variable interest rates as proposed by the SAFRA. After college, the lenders’ interest rates will vary depending on their financial standing. Individuals with a low-income will not be subjected to higher interest rates.

The Obama administration said the government will save more than $80 billion over 10 years and that this surplus will be invested in Pell Grants for low-income students, community colleges and early-childhood educational programs.  

Chambers said the bill would increase the current maximum Pell Grant from $5,350 to $5,550 during the 2010-11 school year, and by 2019, the Pell Grant scholarship should grow to $6,900.

Pell Grants, which were awarded  to 1,010 Ithaca College students this year, are awarded to undergraduate students with financial need and do not need to be paid back.

Freshman Jasper Adams, a Pell Grant recipient, said this boost in nonreciprocal aid is important.

“It’s not fair that just because you don’t have a lot of money, you can’t get a good college education,” Adams said. “More aid gives everyone an equal chance.”

Adams also said that tuition of upwards of $45,000 makes many schools unaffordable for the middle class without financial assistance from an outside source.

“That’s a year’s salary for some people,” Adams said. “And then they don’t have any money to spend on anything else.”

Despite the increase in funding for Pell Grants, the bill does create other complications.

Chambers said it is estimated that the elimination of private lenders will result in the loss of as many as 35,000 jobs within the student loan industry and that the looming deadline will create complications for colleges scrambling to implement the new Direct Lending Program by July.

Eric Maguire, vice president of enrollment management, said a summer deadline could be difficult to meet.  

“There are a lot of changes that need to be made in the background concerning software systems and operational procedures,” Maguire said. “A July deadline would put a pretty significant strain not just on Ithaca College, but on institutions in general.”  

Maguire said he hopes the government will extend the deadline by a year in order to give educational institutions more time to make the transition.

“The one thing I don’t want to have happen is a hiccup in our financial aid system,” Maguire said. “A situation [could arise] where the summer arrives, and we need to start accommodating students, and we’re just not ready.”

The bill will also give $10 billion for community colleges, $8 billion for early-childhood programs and $2.55 billion for historically black colleges and universities. 

The number of questions on the Free Application for Federal Student Aid, commonly known as the FAFSA, will also be reduced. Students and parents file the FAFSA every year to determine the amount of financial aid they are eligible to receive. Lawmakers believe fewer questions will simplify the process.  

In addition, any student convicted of selling a controlled substance while receiving federal aid would lose aid eligibility for two years and a second offense would make the loss of eligibility indefinite.   

The government will also forgive any federal loans held by student members of the military who are called into active duty during a loan period.

Even with the increase in Pell Grants, Chambers said he is not sure if the SAFRA is the best move for financial aid.

“I am not convinced that there are advantages at the student level,” he said. “I have always advocated for there to be more than one lending program.”