For immediate release
July 22, 2005
HIGHER EDUCATION REAUTHORIZATION REPRESENTS biggest cut in the history of federal student financial aid
House Bill Will Include Kildee Language to Permanently End the Student Loan Loophole Which Paid Millions to Lenders At Taxpayer Expense
WASHINGTON. - Congressman Dale E. Kildee (D-MI) voted today against the Republican version of the federal Higher Education Act, the main law governing student financial assistance and other college programs. After three days of consideration, the committee's Republican majority approved H.R. 609 along party lines, which represents the largest cut in federal student financial aid in the 40 year history of the program.
Before final passage, Kildee supported an amendment that would have raised the Pell grant by $500 over five years and made student loans more affordable by allowing students to choose between a fixed and a variable rate when consolidating their student loans and keeping the interest rate cap on student loans at 6.8 percent. Congress promised in 2002 to establish the 6.8 percent cap, but H.R. 609 raises the cap to 8.25 percent - meaning that students already facing huge loan debt will accumulate even more.
"This isn't the kind of legacy that this committee should leave to American children, students and families," Kildee said. "While there are positive provisions in this bill - such as ending the 9.5 percent loan loophole and reducing origination fees - it does more harm than good for college students and their families."
Kildee lauded the inclusion of language that will permanently end an exemption that has allowed lenders that finance their loans using tax-exempt bonds to earn a government subsidized interest rate of 9.5 percent. In the 108th Congress, Kildee led the effort to temporarily shut down the 9.5% loophole, successfully attaching an amendment to the FY 05 Labor-HHS Appropriations bill. If allowed to continue unabated, the Congressional Budget Office (CBO) has indicated that 9.5% special allowance payments would continue to cost taxpayers billions of dollars over the life of the applicable student loans.
"I am pleased to see the committee finally heeding the advice of myself and a majority of Congress who have repeatedly urged that this loophole be shut for good," Kildee said. "The leadership in Congress has had plenty of time and numerous opportunities to close this loophole, yet they have allowed nearly a billion dollars in outrageously high subsidies to be paid out to lenders instead of using that money to make college more affordable and accessible for millions of students."
However, government savings from closing the loophole will not be reinvested into making college more affordable. The Republican budget left the Education Committee with little room to increase student aid, instead diverting those savings toward reducing the massive budget deficit.
"Unfortunately, we had to reauthorize this bill with a giant elephant in the room: reconciliation," concluded Kildee. "The Republican budget resolution forces this committee to make huge cuts to the student aid programs - which could total as much as $12 billion over the next five years. While this bill saves the government some money by cutting excessive subsidies, it also cuts billions in vital student aid benefits."