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Politics

House likely to push for cut in student loan rates

By ANITA KUMAR
Published January 17, 2007

WASHINGTON - The U.S. House expects to easily pass a proposal today that would lower interest rates for millions of college students as Democrats attempt to fulfill an election-year pledge to help America's middle-class families.

But it's a watered-down version of what politicians promised on the campaign trail.

House leaders were forced to scale back the costly proposal after implementing a new rule requiring the House to find a concrete way to pay for every new program - either through a tax increase or a spending cut.

The College Student Relief Act of 2007 calls for lowering interest rates only on some new loans - subsidized Stafford loans for undergraduates - and for phasing the reductions in over five years. Rates would gradually decrease from 6.8 percent to 3.4 percent starting July 1.

"It's a first step," said Luke Swarthout, a higher-education associate with the State Public Interest Research Groups. "Congress needs to do more."

More than 5.5-million students across the nation took out Stafford loans to pay for college in 2004-05, with the average borrower graduating with $13,944 in loan debt. That includes more than 125,000 attending four-year schools in Florida.

The proposal would save a student who graduates from college with $20,000 in debt about $4,000 over the 10-year life of the loan, according to the nonprofit Project on Student Debt.

"This legislation will be a vital first step toward helping to lower college costs for millions of low- and middle-income students, while keeping our promises to taxpayers to maintain responsible spending," said Rep. George Miller, a California Democrat and new chairman of the House Committee on Education and Labor.

The estimated $6-billion cost would be paid for by lenders in several ways - from doubling the origination fee a lender pays to the government to reducing the guaranteed return banks get when students default.

Budget and higher education experts say the lenders will be more than able to cover the costs.

But lenders warn that the changes could squeeze some of them out of the market or force them to look to recoup their losses from students in other ways. It comes a year after lenders say they took a $12-billion hit as part of a Republican deficit reduction plan.

"We will weaken this program," said Tom Joyce, a spokesman for Sallie Mae, one of the nation's biggest providers of student loans. "We are moving money around. We're robbing Peter to pay Paul."

Lowering interest rates for student loans is one of the House Democrats' six top priorities expected to pass in the first two weeks - or 100 legislative hours - of the new 110th Congress.

"How to pay for a college education has become a primary concern for students and families across this country - a concern that Congress must urgently address as part of our goal of strengthening America's middle class," Miller said.

He cites statistics that show financial barriers will stop 4.4-million high school graduates from attending four-year public colleges in the next decade and another 2-million students from attending any college. Tuition and fees have increased at four-year public colleges and universities 41 percent - after inflation - in the last five years.

Some House Republicans are opposed to the bill, saying they did not get to provide any opinions on the proposal or offer any amendments today. It's the same argument they have made against every bill during the first two weeks of Democratic rule.

"This bill, impacting the largest entitlement program within our committee's jurisdiction, has not been vetted by a single committee hearing, has not been part of a bipartisan conversation of any sort," said California Rep. Howard "Buck" McKeon, the top Republican on the education committee.

Senate leaders support the proposal in concept, but Democratic Sen. Ted Kennedy of Massachusetts, chairman of the education committee, will likely introduce a broader bill that would cut the interest rates on other loans and increase the amount each student can receive through Pell grants.

It's not clear what President Bush would support.

The White House has said it supports reducing college costs, but on Tuesday the Office of Management and Budget released a statement saying the administration opposes the bill because it would benefit college graduates, not students.

"The administration will continue to work with Congress on a comprehensive approach to improve college access for the neediest students, in a fiscally responsible manner," the statement said.

Times researcher Angie Drobnic Holan contributed to this report. Anita Kumar can be reached at akumar@sptimes.com or 202463-0576.

Fast Facts:

Florida student loans

Average student debt: $18,303

State rank: 20

Average debt for students at public 4-year schools: $16,402

State rank: 26

Average debt for students at private 4-year schools: $21,282

Rank: 16

Number of subsidized loan borrowers at 4-year schools: 125,475

Average subsidized Stafford loan debt for 4-year graduate: $13,663

Savings for average student starting school in 2007 over life of loan: $2,260

Savings for average student starting school in 2011 over life of loan: $4,370

Sources: The Project on Student Debt and U.S. PIRG

[Last modified January 17, 2007, 05:44:19]