Bill will boost Pell Grants

Michelle Singletary, Columnist

Tucked inside the health care reform law is significant financial relief for the millions of students who borrow to obtain a higher education.

No longer will private lenders play the middleman in federal student loan transactions. As of July, all new federal loans will come directly from the U.S. Department of Education.

This doesn’t mean that private-sector student loans will go away. Many students use the higher-priced loans to bridge the gap between the annual limits for federal loans and the cost of college.

But I doubt many students really care who issues their loans. Whether they borrow directly from Uncle Sam or from private lenders, they’ll still be stuck in debt bondage for decades. From 2000 to 2009, the amount of outstanding federal student loans alone more than quadrupled, from about $149 billion to about $630 billion, according to the nonpartisan Congressional Budget Office.

Still, there is something to trumpet about the provisions directed at higher education.

The federal Pell Grant program will get a badly needed financial boost. The Obama administration says the new law pumps more than $40 billion into this program, which provides need-based grants to low-income undergraduates and certain post-baccalaureate students.

Starting in 2013, the award will be indexed to the Consumer Price Index, adding on a cost-of-living increase. That will raise the maximum from $5,550 to $5,975, according to CBO estimates.

Here’s what really excites me. There will be additional funds for community colleges, historically black colleges and other institutions that serve minorities.

Community colleges are expected to get $2 billion over four years. Minority and historically black colleges and universities will get $2.55 billion.

It’s about time community colleges got some attention and needed funds.

“I have seen firsthand the power of community colleges to change lives and serve as a gateway to opportunity for students at all stages of their lives and careers,” said Jill Biden, the wife of Vice President Joe Biden and a community college English instructor.

I want to take a little sidetrack here to note another news event that put a light on student loans. The U.S. Supreme Court recently handed down a decision that some might read as allowing them to get rid of student loan debt by filing for bankruptcy protection.

Under the Bankruptcy Code, a student loan cannot be discharged unless paying the debt would impose an undue hardship. It’s a hard hurdle to jump.

However, one borrower was able to discharge some of his student loan debt under a Chapter 13 filing without showing hardship. He got away with it because the creditor had failed to object after receiving notice of the proposed plan.

Did this open a window through bankruptcy for debtors struggling with student loan debt? Not at all, bankruptcy experts say. In this particular case, the creditor snoozed and lost.

It would be very “risky” and still unlikely for someone to get a student loan discharged without proving hardship, said Juliet M. Moringiello, resident scholar for the American Bankruptcy Institute.

Oh well, at least if you’re stuck with the debt, provisions in the health care law will lower the cap on monthly payments for some.

Beginning in 2014, student loan payments under the income-based repayment plan will be capped at no more than 10 percent of a borrower’s discretionary income, which is the amount of a person’s adjusted gross income that exceeds 150 percent of the poverty line for the borrower’s family size. Now, payments are capped at 15 percent.

Washington Post Writers Group