Student Financial Aid News

From FinAid.org, an in depth analysis of the new Student Aid and Fiscal Responsibility Act (SAFRA) of 2009.

Key highlights for students:

- The SAFRA proposal would not turn the Pell Grant into a true entitlement. The appropriations committee would be able to adjust the maximum Pell Grant upward or downward by increasing or decreasing the maximum grant under discretionary funding. This means that the appropriations committee will be able to divert Pell Grant funding to other priorities.

- SAFRA eliminates assets from the list of data elements on the FAFSA and the student/parent contributions from assets from the need analysis formula. This will not only eliminate six questions from the FAFSA form, but it will also eliminate any disincentive to save for college since there will no longer be any penalty for saving.

- SAFRA changes the criteria for suspension of eligibility for drug-related offenses. Previously students could lose eligibility for either the possession or sale of a controlled substance during the period of enrollment. SAFRA drops the penalties for possession of a controlled substance but retains the penalties for sale of a controlled substance. SAFRA also increases the suspension to 2 years for a first offense and indefinite for a second offense.

- SAFRA ends subsidized Stafford loans to graduate and professional students starting July 1, 2015.

- SAFRA also makes changes to the interest rates on subsidized Stafford loans for undergraduate students. Under current law, the interest rates on subsidized Stafford loans for undergraduate students are scheduled to increase from 3.4% to 6.8% on new loans first disbursed on or after July 1, 2012. The SAFRA legislation will change the interest rate formula for new loans originated on or after July 1, 2012 to a variable rate equal to the 91-day T-Bill rate plus 2.3% and capped at 6.8%. The unsubsidized Stafford loan interest rate will remain fixed at 6.8%.

- Colleges retain discretion in the awarding of Perkins loans to eligible students, but would be required to package them after subsidized and unsubsidized Stafford loan eligibility had been exhausted.

Commentary

Some very interesting, not well documented changes to federal student aid and financial aid in the SAFRA legislation. The change to Perkins loans to make them subsequent to Stafford loans is potentially unfortunate and does not improve access or affordability, and the re-introduction of capped Stafford loan rates has brought variable rate student loans back into the picture again after Congress eliminated them in 2006.

The elimination of subsidized Stafford loans for graduate students also doesn’t increase access or affordability for anyone.

As expected, the Student Aid and Fiscal Responsibility Act is proving something of an oxymoron already.

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