Anya Kamenetz Generation Debt

Last Wednesday, the U.S. House of Representatives overwhelmingly passed the College Cost Reduction Act of 2007, signaling what could be a new era of government commitment to higher education access.

"This bill is a remarkable step forward in our efforts to help every qualified student go to college," said Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee and author of the legislation. "With this bill, we are saying that no one should be denied the opportunity to go to college simply because of the price."

Promises, Promises

We've heard this line before.

Lyndon Johnson said it in 1965 with the passage of the Higher Education Act. Richard Nixon said it in 1974 with the passage of the precursor to the Pell Grant. Since then, college tuition and student loan debt have both been on a runaway train, and many believe college access is threatened as a result.

While the current bill isn't perfect, it does point the way toward real change and helps students in several concrete ways.

It's All About Income

To my mind, the most significant student benefit in the bill is income-based repayment. Under these proposed new rules, graduates whose earnings don't exceed 150 percent of the poverty line (about $15,000 for a single person) would be exempt from repaying student loans. All borrowers could opt to repay no more than 15 percent of their income above that amount, known as "discretionary income."

So if you earn $25,000 a year, you'd be guaranteed to pay no more than $121 a month regardless of your total loan burden. After 20 years, all remaining balances would be forgiven (10 years for eligible public servants).

There are some possible snags with this plan depending on how it's eventually implemented, but overall I think it's an excellent and very important response to the problem of student debt burdens. Current income-contingent plans are available only to direct loan borrowers, and the "income sensitive" plans for Federal Family Education Loan program (FFEL) borrowers just increase the overall loan balance and are provided at the discretion of the lender.

Making It Fair

This new policy is really a change in philosophy.

It's similar to how student loan repayment works in the UK (where repayment is set at 9 percent of income over $30,000), Australia, and many other countries, where there's a robust social safety net and contributions to the cost of one's higher education are seen as a form of social tax.

It's only right that those who earn more from their education should pay more back. I hear from far too many students here whose loan burdens are out of whack with their incomes, and who are stuck with snowballing debt and no hope of relief via bankruptcy or any other means, not to believe that it's a good idea to have a fair repayment structure in place.

Benefits in the Bill

Here's a rundown of the other student benefits in the bill:

• The maximum Pell Grant, the largest need-based student grant, would increase from the current $4,050 to $5,200 by 2011-2012.

• Student loan interest rates would be gradually cut, from 6.8 percent to 3.4 percent by 2013-2014.

• Federal loan limits would increase so students don't have to take out as many expensive private loans.

• Working students could earn more without being penalized.

• New loan forgiveness programs would be established for early childhood educators, nurses, foreign language specialists, librarians, certain teachers, child welfare workers, speech language pathologists, National Service participants, and public sector employees.

• TEACH, a tuition assistance program for undergrads and grads who commit to teaching in a high-needs area for four years, would also be established.

• A guaranteed $500 million would be set aside over five years for historically and predominately African American institutions, tribal colleges, and institutions for Alaskan and Hawaiian natives.

Trimming Subsidies

How exactly does the bill pay for these student benefits, as well as a $750 million deficit reduction? By cutting an amazing $19 billion in subsidies to student lenders.

That's a lot of fat, and it still doesn't get down to the bone. Lenders aren't going to like this -- they've been used to excessive subsidies for a long, long time. A report by the nonpartisan Congressional Research Service found that Sallie Mae will still be able to turn a profit with the new, reduced subsidy, but after the bill passed the stock of the nation's largest student lender fell 9.8 percent -- the largest drop in 14 years.

A world of leaner student lenders seems assured by the inclusion of a proposal backed by the New America Foundation, among others. This would use an auction mechanism to allow lenders to compete for the right to offer subsidized, guaranteed FFEL student loans. The subsidy level would be set by the open market, not by student loan industry lobbyists. (Sallie Mae was the top contributor among finance and credit companies in the 2006 Congressional races.)

Tuition Hike Alarm Bells

A second controversial move in the bill is to target the immediate source of college cost increases: the colleges themselves.

Starting in 2011, any college with high, outlying tuition increases would have to submit a report to the education secretary explaining why. After two consecutive years, the college would be placed on "affordability alert status." Conversely, colleges that commit to keeping their tuition increases down would be eligible for more Pell Grant funds.

It's a small step toward the real transparency and accountability we need from our higher education institutions. Watch for more on these issues in future columns.

What Comes Next?

The College Cost Reduction Act bill passed 273 to 149, with 47 Republicans joining 226 Democrats. That's healthy margin, but it's not enough to overturn a threatened veto by President Bush.

According to Secretary of Education Margaret Spellings, too much of the bill focuses on borrower repayment rather than grants -- a funny statement coming from an administration that's held the Pell Grant frozen at its current level since 2003.

Regardless, a vote on the Senate equivalent of this bill, with a few key differences, is expected soon. Here's hoping that this fall is a more affordable season for all of the nation's college students.