House votes to cut student loan interest
For Carnegie Mellon students taking on thousands of dollars in debt, relief might be just a few hundred feet away. The House of Representatives passed a bill cutting federal student loan interest rates in half on January 17. The bill is now making its way across the Capitol, awaiting approval by the Senate and President Bush. From there, a short trip down Pennsylvania Avenue, past President Bush’s desk, and graduates will get a little more breathing room each month.
However, Senate Democrats may introduce their own bill by February, The Wall Street Journal reported last Monday.
The House version, called H.R. 5: College Student Relief Act, would gradually lower interest rates from 6.8 to 3.4 percent by 2011. The change will only affect subsidized loans, such as Stafford loans. The government has always covered the interest accumulating on these loans until the borrower graduates.
Around 5.5 million students will be affected. In Pennsylvania alone, there are 211,832 Stafford loan recipients, most of whom are from families earning less than $68,000 a year, said Pittsburgh Representative Mike Doyle (D-Pa.).
“We’re trying to start with the neediest first, for those eligible for subsidized student loans,” Doyle said.
He added that Pell Grants were next on the agenda.
H.R. 5 passed 356-71 with bipartisan support and unanimous Democrat approval. However, the bill saw growing opposition as it was rushed to a vote.
Opponents complained that the bill falls short of Democratic campaign promises.
According to Doyle, the bill was part of the new Democratic majority’s aggressive opening salvo of bills that skipped committee review. Republicans and the Bush administration wanted to spend more money on grants for the most needy students, the Associated Press reported in a January 18 article.
The 3.4 percent interest rate would only be in effect for six months once reached in 2011, at which point it would require a renewal. This is a change from the Democrats’ original plan, which had promised an immediate, not gradual, drop to 3.4 percent that would be in effect for four years.
United States Congressman Buck McKeon (R-Calif.), a ranking member on the House Education and Labor Committee, declined to comment.
“I’d rather see Pell Grants go up,” said William Elliott, Carnegie Mellon vice-president of enrollment, when asked if he would rather see increased gift aid going to lower-income students or more subsidized loans for middle- to lower-income students.
“It’s the difference between giving someone a chance, or someone else a choice.... We don’t have many Pell grant recipients [at Carnegie Mellon],” Elliott said.
Senator Edward Kennedy (D-Mass.) last week proposed an increase in the maximum possible Pell Grant from $4,050 to $5,100, (MSNBC.com) reported.
“I heard comments [that] we should be doing Pell Grants instead of this. My reply to those detractors [is], what have they done in the last 12 years? For 12 years, the other side had power to change interest, increase Pell Grants,” Doyle said.
The average student graduates with $17,500 in unpaid loans, which is a 45 percent increase from 11 years ago, according to the House Committee on Education and Labor website.
According to the terms of H.R. 5, a student leaving school with subsidized loans this year would begin paying back that money at an interest rate of 6.12 percent. Each year, the interest rate will decrease between 0.5 and 0.7 percent until 2011. Six months later, a new rate would be set.
It is unclear what a Senate version of the bill might look like.
“Congress is so new, you don’t know who the power brokers are yet,” Elliott said.
Kennedy’s proposal from last week, which includes the Pell Grant increases, featured a sweetened-up deal for college graduates: a cap on loan payments at a percentage of income, loan forgiveness after 25 years, and an increase in tuition tax deduction, The Washington Post reported last Friday.
The Post warned of looming battles between Congress and lenders such as Sallie Mae, who argue that students are seeing improvements without such drastic changes to lending rules.