On Wednesday, Congressional Democrats in the U.S. pushed through legislation which would cut the interest rate on federally subsidized loans to college students. The bill drew large bipartisan support, despite opposition by President Bush and the White House. The bill passed quite easily with a vote of 356 to 71.
The bill will cut interest rates in half, from 6.8% down to 3.4% over the next five years. The measure is expected to cost $6 billion, which will be financed through increased fees that lends will pay the government, and by reducing the roughly 30 lenders’ government guaranteed profits on these student loans.
Before the vote on Wednesday, the White House issued a statement opposing the measure. President Bush contended that the measure would do nothing to improve access to college and would only help to serve college graduates. He suggested that other measures, including increased grants for lower income students, would be a better solution.
The average college student these days comes out of college with at least $18,000 in debt, those attending private colleges have an average debt significantly higher than that. According to the U.S. Public Interest Research Group, the bill would save the average student who starts college next year about $2,300 in interest payments over the life of a 15-year loan
The bill cuts the interest rate on subsidized Stafford loans to 3.4 percent from the current rate of 6.8 percent in stages over five years, beginning with loans taken after July 1. To make the bill affordable, the full benefit of the loanâ€™s promise of 3.4 percent interest rates applies only to loans made after July 1, 2012, and expires by the end of that year. In other words, this bill isn’t going to help those of us in school right now one bit, and the 3.4% interest rate will only apply for a whole six months. I guess it’s better than nothing, but come on!
There’s another bill going through the Senate that has some promise as well. Senator Edward Kennedy (D-MA), chairman of the education committee, is sponsoring a bill that would also reduce the interest rates on student loans, as well as a number of other changes. The bill would also increase the maximum Pell grant to $5,100. While I haven’t seen the full draft of this piece, it does sound quite promising. Increasing grants and lowering interests is a logical way to reduce the amount of debt that students come out of college with.