Sen. Ted Kennedy Proposes Changes to Student Loan Industry

Senator Edward M. Kennedy (D-Ma.) announced proposed legislation that could change the student loan industry, one-upping a plan from President Bush and a proposal that the House Education and Labor Committee recently approved.

Kennedy, chairman of the Health Education, Labor and Pensions committee, will propose raising the maximum cap on Pell grants, college scholarships that do not have to be repaid, from $4,050 this year to $6,300 in the 2011-12 academic year, an increase of 55 percent over current levels, according to Kennedy’s office. That’s 21 percent higher than the $5,200 the House committee voted for, and nearly 13 percent more than the president’s proposed $5,600 cap.

Kennedy’s increases would be implemented in stages, with a cap of $5,400 in 2008-09, $5,700 in 2009-10, and $6,000 in 2010-11. Kennedy plans to introduce his legislation tomorrow.

Raising the cap on student loans that the federal government covers could reduce the amount that now comes from major providers like Sallie Mae, Citigroup, or Bank of America, and a host of smaller student loan issuers.

The three proposals come in response to reports of payoffs and other inducements in the student loan industry, with lenders paying colleges to steer business their way.

Kennedy’s proposal also would bar lenders and loan guarantors from offering stock, prizes, travel, entertainment expenses, tuition repayment, or other inducements “for the purposes of securing benefits – including applications for loans,” according to a Reuter’s story today.

Under Kennedy’s proposal the U.S. Department of Education would develop a tuition-cost index and publish a “higher Education Price Increase Watch List” each year that would document which colleges and universities are outpacing the index in their increases.