Student Debt Addressed by Congress

Student Debt Addressed by Congress

Dan Roche

Are you swamped with student debt? Congress may have a lifeline. The House of Representatives approved legislation proposed by Representative George Miller (D-CA) to lower interest rates on federal Stafford loans from the 6.8 percent charged in 2006 to 6.12 percent in 2007, further to 5.44 percent in 2008, 4.76 percent in 2009, 4.08 percent in 2010 and ultimately 3.4 percent by 2011. The cost of the bill to taxpayers, an estimated $6 billion dollars over that span, would be offset by increased fees for private loan providers (such as Sallie Mae) should the legislation pass.

While the Senate has yet to decide on the bill, it has already received support from powerful Capitol Hill figures such as Senator Ted Kennedy, chairman of the Senate Health, Education, Labor and Pensions Committee. The bill Kennedy has proposed to the Senate will also bolster the awarding of Pell Grants, allow students to cap loan repayments in proportion to income, and impose a statute of limitations of 25 years on student debt.

It faces strong opposition from loan providers. Kennedy has stated that “The student loan program works brilliantly for the banks, but not for the students. We ought to take the money-changers out of the temple in terms of student loans.” A slight directed at the lenders, to which Tim Fitzpatrick, CEO of Sallie Mae responded, “Unfortunately, Sen. Kennedy has attempted to smear the integrity of Sallie Mae, the student loan industry, and the financial aid professionals. I’m certainly personally disappointed in his baseless and insulting attacks.”

The White House is also skeptical, saying that grants and loan aid should be shared by colleges as well as the government and private lenders. While supporting increased grant support for low-income students, the administration holds that grants immediately reduce debt burden while a loan, despite the lower rate, can still prove insurmountable to those who enter into lower-paying professions, such as social service.

The Republican Congress of 2006 passed a bill that called for a $12.7 billion reduction in federal student loan programs such as Stafford, which lead to the 6.8 percent rate currently in place. The bill passed by Miller is seen as a direct response to that legislation and was included in the “100 hour” agenda imposed by House Speaker Nancy Pelosi (D-CA), which also included a minimum wage increase, among other measures.

Adrienne Girard of MASSPIRG, local representatives of the nationwide Public Interest Research Groups that have been vocal on the subject of student debt, is enthusiastic about the bill: “Not only is it just a great bill passed, but I think it really does show that when students and young people do go out to the polls to vote, politicians pay attention to us,” referring to the youth turnout in the 2006 Congressional elections. She estimates that the average student starting school in 2007 saves over $2,000 during the life of their loan, while a student starting school in 2011 stands to save more than $4,500 over the life of their loan.

While a rate reduction may not be a magic cure-all for mounting student debts, the move is a clear message from Democrats that the party is keeping students in mind: often, student debt can factor into whether a graduate takes a job that is personally fulfilling but lower-paying or, instead, the most financially expedient.