Across the Board, Aid Rises

Starting next school year, hundred of Harvard students could enjoy more generous financial aid packages thanks to a new law that will lower interest rates on federal loans and increase the size of grants for needy students.

President Bush on Thursday signed into law a $20 billion increase in federal financial aid, boosting the size of some Pell Grants by up to $1,100 per year and gradually cutting the interest rates of federally subsidized loans from 6.8 percent to 3.4 percent. The Pell Grant, a form of financial aid given to more than 5 million low-income students each year, will be capped at a maximum of $5,400 per year by 2012 under the new law.

Sally C. Donahue, director of financial aid, called the new legislation, which has been compared to the 1944 G.I. Bill, “an investment in this country’s education, in this country’s future.”

“The new law will help greatly students in all institutions, especially those with less resources like community colleges and state schools,” she said.

More than 800 Harvard students are recipients of Pell Grants each year, according to Donahue. In the 2005-2006 academic year, the average Pell Grant was $2,354 and the maximum award was $4,050, according to the College Board.

Undergraduates aren’t the only students that will reap the benefits of the legislation.

Graduate students who have worked in lower-paying public service jobs for more than 10 years will be afforded loan forgiveness. In addition, the new law will impose a cap on loan payments for some graduates at a percentage of their income.

“This will be of great help for those students working in the less financially rewarding jobs, and a great incentive for those interested in those fields,” said Suzanne Day, Harvard’s director of federal relations. Day worked with Senator Edward M. Kennedy ’54-’56 (D-Mass.) to support the legislation.

Day called the new law “the right step towards the advancement of education in the United States, and a bill solely drafted to help students in need.”

The bill, known as the College Cost Reduction and Access Act, passed with significant bipartisan support. To pay for the increases in aid, the $20 billion previously earmarked for private banks and lenders will be redirected toward federal grants and subsidized loans.

Some advocates for the lending industry have criticized the legislation, arguing that it would drive up interest rates for students with private loans.

At Harvard, however, loans are subsidized by the University or the federal government, meaning students are not faced with the prospect of going through private lenders.

The cut in funding to student lenders comes after recent investigations revealed that some lenders had endeavored to win over universities with gifts and other sorts of incentives in an attempt to increase profits.