House Passes Bill to Halve Student-Loan Interest Rate
Chronicle of Higher Education 1/18/07
The bill (HR 5), the fifth of six that Democratic leaders have promised to take up during the first 100 hours of the new Congress, now heads to the Senate. Sen. Edward M. Kennedy, of Massachusetts, the chairman of that chamber's education committee, has indicated he plans to wrap the interest-rate cut into a broader legislative package he will introduce in February.
If the cut clears the Senate, it could still face a veto by President Bush, who issued a statement on Tuesday saying that he opposes the bill (The Chronicle, January 17). It would take a two-thirds majority in both chambers to override a presidential veto -- a margin that Wednesday's vote suggests the House, at least, clearly has.
If the House Democrats' measure, known as the College Student Relief Act of 2007, is signed into law, it would reduce the interest rate on subsidized Stafford loans for undergraduate students in steps from 6.8 percent to 3.4 percent. Once the cut was fully phased in, in mid-2011, it would save the average borrower with $13,800 in debt roughly $4,400 in interest over the life of his or her loan, according to the bill's sponsors.
The cost of the measure -- estimated at $6-billion -- would be largely borne by lenders and loan-guarantee agencies. Nearly one-third of the money would come from the savings generated by reducing the federal subsidies that the top 1 percent of private lenders receive on federal loans by one-10th of a percentage point.
Wednesday's floor debate in the House centered on whether the bill would do anything to narrow the enrollment gap between students from low-income and upper-income families. During three hours of discussion, Republicans repeatedly said it would not.
"Ironically, the College Student Relief Act wouldn't impact a single college student," Rep. Howard P. (Buck) McKeon, a California Republican and former chairman of the House education committee, said in an opening statement. "Rather, it provides slowly phased-in benefits to college-loan borrowers who are graduated. By definition, they are no longer students."
Democrats defended the bill, saying that students consider future debt burden when weighing whether they can afford to go to college.
"When students are making decisions, they are mindful of future obligations they are taking on," Rep. Timothy Bishop, Democrat of New York, said at a news conference on Wednesday. "High indebtedness scares people off," said Mr. Bishop, who is a former provost at Long Island University's Southampton College.
Democrats stressed that the measure was only the first step they would take to make college more affordable and accessible for low-income students. They vowed to also raise the maximum Pell Grant, increase the tax deductibility of college tuition, and tackle the issue of rising college costs.
"This is only the beginning," said Rep. George Miller, the California Democrat who is chairman of the House education committee and the bill's principal sponsor. "This is a down payment on our effort to reduce the cost of college."
The bill is the first that Democrats have considered under "pay as you go" rules, adopted this month, which require any new spending to be offset by cuts. To hold down the bill's cost, House Democrats had to phase in the cut and limit it to undergraduate subsidized Stafford loans taken out by students. Originally, they had called for slashing the interest rate on almost all federal loans taken out by students or their parents.
They also set an expiration date on the bill: January 1, 2012. That means that the final 3.4-percent interest rate would be in effect for only six months, from July 1, 2011, to January 1, 2012.
Republicans seized upon that "sunset" provision, calling the rate cut "hollow" and a "political gimmick."
"This really is a bait and switch," said Rep. Tom Price, a Georgia Republican. He noted that under the bill, no students would actually save $4,400 because they would get the 3.4-percent rate on only one year of their loans.
Mr. Miller responded: "I find it interesting that my colleagues think this won't help a single student. You know who thinks this will help students? Students! Apparently, this won't help any of the Republican members of Congress, but it will help students."
Mr. Miller said that Democrats planned to extend the 3.4-percent rate through subsequent legislation.
Before voting to pass the bill, the House rejected, 186-241, a motion by Mr. McKeon to send the bill back to the education committee with changes. The "motion to recommit" would have put an income cap on the benefit, limiting it to college graduates who earn less than $65,000 and to members of the armed forces on active duty, and would have directed the savings to need-based aid.