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By The Skanner News | The Skanner News
Published: 15 July 2009

WASHINGTON (AP)  - President Barack Obama's plan to dramatically increase college student aid took its first step Wednesday on what could be a rocky path through Congress.
A key lawmaker proposed a bill to boost Pell Grant scholarships for low-income students by linking them to inflation for the first time since the program began.
House Education Committee chairman George Miller's legislation would pay for the expansion by eliminating a massive program of subsidies for private college loans - an idea that is opposed by lenders and their many supporters on Capitol Hill.
Obama's education secretary, Arne Duncan, said the government should spend education dollars on students and not on private lenders.
"There is tremendous need, given the tough, tough economy, for families to send their children to college,'' Duncan said during a Wednesday conference call with Miller, D-Calif. ``And we believe we need to invest in them and not in banks.''
Under the bill, subsidized loans would be replaced by the government's existing direct loan program.
Besides Pell Grants, $10 billion of the estimated $87 billion in savings from eliminating subsidies would go toward early childhood education, increasing the number of poor children with access to pre-kindergarten, among other things.
Private lenders made $56 billion in loans to more than 6 million students and parents under the subsidized program, which is called the Federal Family Education Loan program.
But the public-private partnership has begun to crumble under the weight of the recent credit crisis. Hundreds of lenders have stopped making federally backed loans, and hundreds of colleges that had only offered subsidized federal loans have signed up for direct loans.
The government made $14 billion in direct loans to 1.5 million students last year.
An estimated $18 billion was borrowed directly from private lenders, though the nonprofit Institute for College Access and Success estimates the majority of undergrads with private loans did not max out on their eligibility for federal loans.

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