Congress approved legislation Friday that will take more than $20 billion of government… Congress approved legislation Friday that will take more than $20 billion of government funds paid to student loan institutions and put that money into the pockets of college students.

By reducing the subsidies paid to lenders, the bill will increase the maximum Pell Grant from $4,310 a year to $5,400 a year by 2012.

Additionally, it would cut interest rates on federally backed student loans, like the Stafford loan, from 6.8 percent to 3.4 percent over the next four years.

The Senate and the House passed the College Cost Reduction and Access Act with votes of 79 to 12 and 292 to 97 respectively. President George W. Bush has said he will sign the legislation into law.

“The College Cost Reduction and Access Act is the most meaningful higher education reform in more than 15 years,” Luke Swarthout, higher education associate for the U.S. Public Interest Research Groups, said in a statement released Friday.

While University of Pittsburgh financial aid directors agree that this legislation is important, they want Pitt students to realize that its effects will be felt on a more long-term basis.

“I don’t minimize the importance of the change, because it is a good one,” said Betsy Porter, director of Pitt’s Office of Admissions and Financial Aid. “But it isn’t going to happen in just one year.”

Porter noted that interest rates for federal student loans will be cut gradually starting on July 1, 2008, when they will drop from 6.8 percent to six percent. Rates will be further knocked down through 2011, when the interest rate will drop to 3.4 percent.

The rate reductions will only apply to new subsidized Stafford loans. They don’t apply to unsubsidized Stafford loans, which can be taken out by any student regardless of financial need, or to loans that have already been taken out.

Porter also explained that while reducing subsidies distributed to loan institutions means more money for the Pell Grant program, the billions of dollars expected will not be converted immediately.

“To build an expectation for Pitt students that suddenly their Pell Grant of $2,000 will be doubled by next year would be creating a false impression,” Porter said.

Students who receive the maximum Pell Grant, usually awarded to those in the lowest income bracket whose families earn less than $40,000 or $50,000 a year, will see their Pell Grant of $4,310 increase by $490 next year. Students in other need-based categories will receive incremental increases that match accordingly.

But the money for this boost in financial aid has to come from somewhere.

The rate cuts and grant increases for students are offset by a reduction of more than $20 billion in subsidies paid to lenders in the federal loan program, thus cutting into the profits of these lending institutions.

Lenders have spoken out against the bill, some arguing that the subsidy reductions will force institutions out of business, in turn reducing competition and inevitably degrading the loan services available to students.

An expert from the PNC Financial Services Group, a leading student loan provider in Pennsylvania, was unavailable to comment on what the legislation could mean for PNC or its loan services.

“We recognize the growing importance of student loans in helping students and their families achieve their educational goals and we want students and parents to be confident that PNC is still here for them,” Fred Solomon, Vice President of Corporate Communications for the Group, said in an e-mail.

Suzanne McColloch, Senior Associate Director of Admissions and Financial Aid at Pitt, said she trusts that the legislation will not work against student borrowers.

“They obviously didn’t come up with this idea out of thin air. They did serious studies before they proposed the legislation,” McColloch said.

In addition to more grant money and lower interest rates, the bill establishes other features like loan forgiveness and income-based repayment.

Starting next year, borrowers working in public service professions like law enforcement, nursing or teaching will have any balance of their loan forgiven after 10 years of service and loan payments.

And starting on July 1, 2009, anyone paying off a Stafford loan won’t be responsible for any loan payments that consume more than 15 percent of their income.