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History of Student Financial Aid

This page provides a summary of events affecting student financial aid, including key Federal legislation.

2010 The Health Care and Education Reconciliation Act of 2010 (P.L. 111-152) was passed by the House and Senate on March 25, 2010 along party lines and signed into law by President Obama on March 30, 2010. The bill eliminates the federally-guaranteed student loan program (FFELP), with all new federal education loans made through the Direct Loan program starting July 1, 2010. The savings are redirected to the Pell Grant program, deficit reduction, improvements in income-based repayment and a variety of smaller programs. Most of the Pell Grant funding was used to backfill a funding shortfall from the American Recovery and Reinvestment Act of 2009 (stimulus bill) and to make permanent the increased maximum Pell Grant from that legislation. The rest of the Pell Grant funding indexes the maximum Pell Grant to the Consumer Price Index for five of the ten years, with the maximum Pell Grant unchanged for the remaining five years. The legislation cuts the monthly payment under income-based repayment by one third from 15% of discretionary income to 10% of discretionary income, and accelerates the loan forgiveness from 25 years to 20 years, but only for new borrowers of new loans made on or after July 1, 2014.
2009 The American Recovery and Reinvestment Act of 2009 was passed by the House and Senate on February 13, 2009 largely along party lines. The bill includes a $500 increase in the maximum Pell Grant (discretionary funding) for 2009-10, a $700 increase in the Hope Scholarship tax credit from $1,800 to $2,500 for 2009 and 2010 (along with partial 40%/$1,000 refundability, an increase from 2 years to 4 years and expanded income phaseouts), $200 million in additional Federal Work-Study funding and $200 million in AmeriCorps funding.
2008 Congress finally reauthorized the Higher Education Act of 1965 after more than a dozen extension acts. The Higher Education Opportunity Act of 2008 (PL 110-315) added numerous new disclosure requirements including the Student Loan Sunshine Act. Other significant changes include veterans' education benefits will no longer be treated as a resource starting in 2010-11, expands the cohort default rate from a two-year to a three-year window, establishes three new up-front loan forgiveness programs, requires education lenders to report repayment status information to all national consumer credit reporting agencies, authorizes a simplified EZ FAFSA form, requires standardization of the financial aid award letter, and softens the 90/10 rule.
2008 Congress passed the Ensuring Continued Access to Student Loans Act of 2008 (P.L. 110-227), known as ECASLA, to help avert a crisis in the FFEL program. This legislation allows the US Department of Education to buy unemcumbered Stafford and PLUS loans originated from 10/1/03 to 9/30/09. The legislation also increased the annual and aggregate loan limits on the unsubsidized Stafford loan for undergraduate students and allows parents to defer repayment on the Parent PLUS loan while the student is in school and for six months afterward. Congress also passed the Ensuring Continued Access to Student Loans Act Extension (P.L. 110-350) to extend ECASLA to the 2009-10 academic year.
2007 The US Department of Education announced that it will be eliminating mass distribution of paper FAFSAs to schools and libraries with the 2008-09 FAFSA. Instead, students will be encouraged to submit the FAFSA online. Students who need a paper FAFSA can print out a PDF version or call 1-800-4-FED-AID (1-800-433-3243) to obtain a copy by mail. This change will save money and reduce waste.
2007 The College Cost Reduction and Access Act of 2007 (summary) passed the House and Senate on September 7, 2007 with veto-proof margins (79 to 12 in the Senate, 292 to 97 in the House), and was signed into law on September 27, 2007 (P.L. 110-84). The legislation was billed by the Democratic Leadership as the largest increase in federal student aid since the GI Bill, paid for at no cost to the taxpayers by cutting payments to lenders and guarantee agencies. The legislation increased the maximum Pell Grant from $4,310 in 2007-08 to $5,400 in 2012-13, added Teach Grants of $4,000 a year, cut interest rates on subsidized Stafford loans for undergraduate students in half by 2011-12, added income-based repayment and public service loan forgiveness (effective October 1, 2007), doubled the income protection allowance for dependent students from $3,000 in 2007-08 to $6,000 in 2012-13 and increased the income protection allowance for independent students by 50% by 2012-13, increased the automatic zero EFC threshold from $20,000 to $30,000 in 2009-10, and eliminated Worksheet A from the FAFSA. It also corrected the legislative drafting error with regard to the treatment of custodial qualified education benefits (section 529 college savings plans, prepaid tuition plans and Coverdell Education Savings Accounts), treating them as though they were parent assets starting July 1, 2009. The legislation also established a pilot auction for setting the lender subsidy rates on Parent PLUS loans (effective July 1, 2008). Most of the improvements in student aid are effective July 1, 2009. The lender subsidy cuts are effective October 1, 2007. The increases in the Pell Grant and the cuts in subsidized Stafford loan interest rates are effective starting July 1, 2008.
2007 Section 8241 of the Small Business and Work Opportunity Act of 2007, which was included in the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007 (P.L. 110-28), increased the age at which a child's income is taxed at the child's rate (the so-called Kiddie Tax) from age 18 to 19 (24 for full-time students) for children whose earned income does not provide more than one-half of their support. The age is relative to December 31 of the tax year. This roughly aligns the kiddie tax age threshold with the definition of independent student, substituting tax year for award year. This change is effective for tax years beginning after May 25, 2007.
2007 Allegations by the New York Attorney General of lender-college revenue sharing agreements, referral fees and other conflicts of interest lead to multi-million dollar settlements by the largest education lenders. Lenders and colleges agreed to abide by a new code of conduct that bans certain practices. Prominent financial aid administrators and a US Department of Education official were put on paid leave following relevations of their lender stock holdings and payments received from lenders.
2007 The Revised Continuing Appropriations Resolution of 2007 (P.L. 110-5) increased the maximum Federal Pell Grant for 2007-2008 by $260 to $4,310, ending four years of no increases in the maximum Pell Grant.
2006 The Tax Relief and Health Care Act of 2006 (P.L. 109-432, December 20, 2006), also known as the omnibus tax extender bill extended the Tuition and Fees deduction for two years (2006 and 2007).
2006 The December 31, 2010 sunset on the favorable tax status of section 529 college savings plans and other improvements from the Economic Growth and Tax Relief Reconciliation Act of 2001 has been eliminated. These improvements were made permanent as part of the Pension Protection Act of 2006 (P.L. 109-280).
2006 The single holder rule was repealed as part of Public Law 109-234, the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006. The repeal is effective June 15, 2006. All borrowers may now consolidate their loans with any lender. Previously, borrowers who had all their loans with a single lender were required to consolidate their loans with that lender. This increases competition for student loans, and may lead to improved benefits and lower costs for borrowers.
2006 The Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) increased the age at which income earned by children is taxed at the child's rate (the so-called Kiddie Tax) from age 14 to age 18. This change is effective for tax years beginning after December 31, 2005.
2005 Section 220 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), P.L. 109-8 amended the US Bankruptcy code at 11 USC 523(a)(8) to include an exception to discharge for "qualified education loans". Previously only private student loans made by a nonprofit institution (as well as federal education loans) were excepted from discharge.
2005 Higher Education Reconciliation Act of 2005 (HERA 2005) (part of the Deficit Reduction Act of 2005) cuts $12.7 billion from student aid: switches Stafford and PLUS interest rates to fixed rates of 6.8% and 8.5% (an increase from P.L. 107-139), keeps maximum Pell Grant at $4,050 for fourth year in a row, gradually reduces loan fees from 4% to 1%, increases some annual loan limits without increasing cumulative loan limits, changes financial aid treatment of prepaid tuition plans, allows graduate and professional students to borrow PLUS loans, eliminates floor income guarantee and some 9.5% loan recycling, adds SMART Grants for less than 10% of Pell Grant recipients, repeals early repayment status loophole, and adds restrictions to School as Lender, among other changes.
2005FY2006 Federal Budget cuts 1% from all discretionary spending, including student aid.
2005Student loan interest rates reach historical low, allowing borrowers who consolidate during the in-school period to lock in a rate of 2.88%. Early repayment status loophole allows continuing students to consolidate.
2004Sallie Mae completes privatization
2003US Supreme Court rulings on affirmative action cases Grutter v. Bollinger and Gratz v. Bollinger
2002 Public Law 107-139 (February 8, 2002) changed education loan interest rates from variable rates to fixed rates for new loans issued after July 1, 2006. The interest rate on Stafford Loans will be 6.8%. The interest rate on PLUS Loans will be 7.9%.
2001Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), P.L. 107-16 (enhanced section 529 plans and other education tax credits, renamed Education IRAs as Coverdell accounts)
2000Lenders sue the US Department of Education to try to block the Department from offering loan discounts to Direct Loan borrowers without offering similar discounts to FFEL borrowers. The lenders also questioned whether the discounts are cost neutral, as required by the Higher Education Act. The Department believes that these reductions will save the government money by preventing defaults, save students money by reducing costs, and are necessary to level the playing field. Many lenders already offer similar discounts. (November 7, 2000)
2000College Scholarship Fraud Prevention Act of 2000 (P.L. 106-420, November 1, 2000)
1999Direct Lending introduces loan discounts (1% reduction in origination fees and 0.25% interest rate reduction for auto debit) to compete with loan discounts offered by FFELP lenders. (June 16, 1999)
1998Default Rate Changes. A steady decline in national student loan default rates began in 1998 with several changes introduced by the Higher Education Amendments of 1998: (1) an increase from 180 days to 270 days in the length of time before a delinquent borrower is declared to be in default, (2) elimination of eligibility to participate in federal student loan programs for any college with a default rate of 25% or more for three consecutive years (or 40% or more in a single year), and (3) interest rate reductions.
1998Higher Education Amendments of 1998 renamed SSIG as LEAP, created GEAR UP, suspended student aid eligibility for drug convictions, and added Extended Repayment. (P.L. 105-244, October 7, 1998)

Other changes:

  • Cut Stafford loan interest rates by 0.80%. Consolidation loans round up to the nearest 1/8th of a percent (previously whole percent) and capped at 8.25%.
  • Cost of attendance may now include the cost of a personal computer.
  • Excludes parents from number in college, switching it to professional judgment (PJ).
  • Adds examples of other common special circumstances that merit PJ: tuition expenses at an elementary or secondary school, medical or dental expenses not covered by insurance, unusually high child care costs, recent unemployment of a family member, the number of parents enrolled at least half-time in a degree, certificate, or other program leading to a recognized educational credential at a Title IV school, or other changes in the family's income, assets, or student's status.
  • Allows financial aid administrators the authority to refuse to certify a student's loan application on a case by case basis, so long as the school is not discriminating based on race, national origin, religion, sex, marital status, age, or disability status. This allows schools to limit the borrowing of students in specific majors or years in school. It also allows them to refuse to certify a loan if they feel that the student has no intention of repaying the loan.
  • Authorizes the establishment a loan cancellation program for teachers.
  • Authorize the US Department of Education to verify income data submitted on the FAFSA with the IRS. This measure is intended to eliminate a major source of fraud.
1997Taxpayer Relief Act of 1997, P.L. 105-34 (Hope Scholarship, Lifetime Learning Tax Credit, Education IRAs, income exclusion for $5,250 in employer education benefits, tax deduction for up to $2,500 in student loan interest)
1997Need-Based Educational Aid Antitrust Protection Act of 1997 (limits exchange of financial information between colleges)
1997The introduction of FAFSA on the Web (fafsa.ed.gov) in 1997-1998, the online version of the Free Application for Federal Student Aid, leads to significant shift from paper applications to electronic applications.
1996FTC Project ScholarScam launches crackdown on scholarship scams
1996US 5th Circuit Court of Appeals ruling in Hopwood v. Texas prohibits the use of race or ethnicity in admissions and financial aid in Texas, Louisiana, and Mississippi
1996Congress approves privatization of Sallie Mae
1996California voters adopt Proposition 209, banning the use of race in college admissions and financial aid at California public colleges and universities
1995First free large online scholarship search database (FastWeb)
1994US 4th District Court of Appeals decision in Podberesky v. Kirwan requires that evidence of past discrimination must be clearly evident in a case involving a race-based scholarship
1994Establishment of FinAid web site
1993Student Loan Reform Act (established direct lending, added income contingent repayment)
1993National Service Trust Act (AmeriCorps provides education grants for students age 17 and over who perform community service)
1992Higher Education Amendments of 1992 (added FAFSA and required it to be free, added Direct Lending pilot project, added unsubsidized Stafford loans, replaced two federal need analysis formulas -- the Pell Grant Formula and the Congressional Methodology -- with a single Federal Need Analysis Methodology, changed definition of "independent student", added community service requirement to Federal Work-Study, eliminated PLUS loan limits)
1991Veterans' Educational Assistance Amendments of 1991
1990Omnibus Budget Reconciliation Act of 1990 (elimination of student aid eligibility at high default schools)
1989Student Loans Reconciliation Amendments
1988Tax Reform Technical Amendments (created Education Savings Bonds)
1988Supplemental Loans to Students Reform Bill
1987GSL Program renamed the Stafford Loan Program
1986Michigan Education Trust established as the first prepaid tuition plan
1986Reauthorization of the Higher Education Act (added Congressional Methodology as a second federal need analysis methodology, gave financial aid administrators broad discretion through "professional judgment", required financial need for the GSL interest subsidy, NDSL renamed Perkins Loan, created Supplemental Loan to Students (SLS) for graduate, professional and independent students, restricted PLUS loans to parent borrowers, added FFEL consolidation loans)
1986 The Consolidated Omnibus Budget Reconciliation Act of 1985 (signed into law on April 7, 1986) changed the definition of a default on federal education loans from a delinquency of 120 days to 180 days.
1985Montgomery GI Bill - Active Duty
1983Student Loan Consolidation and Technical Amendments Act of 1983 (GSL 8% interest rate, EFC)
1982Defense Authorization Act of 1982/1983 (Selective Service registration required for financial aid eligibility)
1981"I Have a Dream" Project founded by Eugene Lang at P.S. 121 in Harlem
1981Omnibus Budget Reconciliation Act (Federal student loans depend on financial need again and add an origination fee)
1980US Department of Education elevated to a cabinet-level department.
1980Reauthorization of the Higher Education Act (established PLUS loans, BEOG renamed Pell Grants after Senator Claiborne Pell of Rhode Island)
1979Department of Education Organization Act, PL96-88
1978Middle Income Student Assistance Act (expanded federal student assistance programs to include middle-income students in addition to the low-income students by expanding eligibility for the BEOG grant and eliminating income restrictions for GSL loans)
1978US Supreme Court ruling in Regents of the Univ. of California v. Bakke eliminated the use of quotas in college admissions
1976Education Amendments of 1976, PL94-482, Reauthorization of the Higher Education Act (added SAP requirements and state loan-guarantee agencies)
1976CSS introduces the Financial Aid Form (FAF) as a replacement for the Parent's Confidential Statement (PCS) and Student's Financial Statement (SFS)
1975Harry S Truman Memorial Scholarship Act, PL93-642 (scholarships for public service)
1974Family Educational Rights and Privacy Act (FERPA)
1974National Task Force on Student Aid Problems develops Uniform Methodology (UM)
1972Student Loan Marketing Association (Sallie Mae) established as a Government-Sponsored Enterprise (GSE)
1972Education Amendments of 1972, PL92-318 (federal matching grants for state student incentive grants)
1972Basic Educational Opportunity Grant (origin of the Pell Grant, first federal need analysis formula). Maximum grant was initially $452.
1972Educational Opportunity Grant renamed Supplemental Educational Opportunity Grant (SEOG)
1968Higher Education Amendments of 1968, PL 90-575
1966National Association of Student Financial Aid Administrators (NASFAA) Created. NASFAA was initially called the National Student Financial Aid Council, but was renamed in 1969. Alan W. Purdy was the first chairman of NASFAA.
1965Educational Opportunity Grant Program (precursor to Pell Grant)
1965Guaranteed Student Loan (GSL) Program, precursor to Stafford Loan Program
1965Higher Education Act of 1965, PL89-329 (authorized most federal student financial aid programs, including the Educational Opportunity Grant Program and the Guaranteed Student Loan Program). President Lyndon B. Johnson's remarks at the signing ceremony.
1964Economic Opportunity Act of 1964, PL88-452 (established college work-study and authorized Head Start, Upward Bound, and VISTA)
1964Civil Rights Act of 1964, PL88-452
1963Health Professions Educational Assistance Act of 1963, PL88-204 (student loans)
1961CSS Introduces the Married Student Supplement which later evolved into the Student's Financial Statement (SFS)
1958National Defense Education Act, PL85-864 (graduate fellowship program and the National Defense Student Loan Program (NDSL), the precursor to the Perkins Loan Program, first Federal student aid program for low-income students)
1956CSS Introduces the Parent's Confidential Statement (PCS)
1954College Scholarship Service (CSS) Created
1953John Monro of Harvard presents first need analysis formula
1952Veterans Readjustment Assistance Act (extended GI Bill benefits to Korean War Veterans)
1952National Science Foundation Graduate Fellowships
1950National Science Foundation Act
1946Fulbright Scholarships established
1944GI Bill (Servicemen's Readjustment Act)
1937Creation of Public Health Service fellowship program.
1935National Youth Administration (employment for college students)
1935Indiana Student Financial Aid Association established (first state financial aid association)
1913New York State established the Regents College Scholarship Program
1867Authorized creation of US Department of Education
1840First student loan program at Harvard University
1643First scholarship established by Lady Anne Radcliffe Mowlson at Harvard University

Other information about the history of student financial aid can be found in the second section of the first module of the SFA coach.

 

 
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