House votes to cut student loan rates
February 6, 2007
The U.S. House of Representatives voted 356 to 71 to pass the College Student Relief Act Jan. 17. This act incrementally reduces student loan interest rates from 6.8 percent to 3.4 percent over the next five years.
p. The Chronicle of Higher Education reported that the bill’s sponsors said that in 2011, after the cut is fully phased in, “it would save the average borrower with $13,800 in debt roughly $4,400 in interest over the life of his or her loan.”
p. Proponents of the bill claim that the cost, estimated to be between $6 and $7 billion, would not come from taxes, but instead from a reduction in government perks to lending institutions, cuts to other lending programs and minimized lender insurance.
Democrats cite increasing college costs as a main reason for the bill. According to a press release from the House of Representatives, “the typical student now graduates with $17,500 in total federal student loan debt. According to past estimates from the Department of Education, as many as 200,000 would-be students are forced to delay or forgo college altogether due to cost.”
p. The White House opposes the bill with the view that spending money to increase grants instead of cutting interest rates would more directly serve those in need. The White House also stated that this decrease would help college graduates but not affect current students and families.
p. College economics Professor Robert Archibald agreed.
p. “Decreased interest rates could encourage families to save less and borrow more, thus increasing family debt, but the neediest families may not be able to save under either circumstance,” he said. “Pell Grants are better targeted because the funding would only go to the neediest students rather than affect middle and upper income students who might benefit from decreased interest rates.”
p. Republicans also claim that the sunset clause, which makes the bill expire Jan. 1, 2012, curtails possible effectiveness and turns the bill into a political ploy. They say that Democrats are only trying to meet their goal of passing a student loan bill in the new Congress’s first 100 legislative hours.
p. Democrats maintain that cutting interest rates directly benefits the most needy people. The House of Representatives press release stated that, “half of the student-loan borrowers who would benefit under this legislation have family incomes between $26,000 and $68,000, according to the Congressional Research Service.”
p. “I don’t think this bill will be made into law,” Professor Archibald said when asked about the economic implications of the bill. “It is the first volley in an exchange to change the federal student aid program.”