House Acts to Lower Student-Loan Interest

House Acts to Lower Student-Loan Interest

The U.S. House of Representatives passed legislation Wednesday that could reduce recent college graduates' debt over the next five years - an action touted by Democrats as a much-needed relief to students struggling to pay tuition that is rapidly outpacing the rate of inflation.

The College Student Relief Act of 2007 will ultimately halve the interest rate for federally subsidized Stafford Loans from the current 6.8 percent to 3.4 percent by July 2011. Last year, 7,653 UI students took out subsidized Stafford Loans; there were around 5.5 million nationwide.

"I was able to achieve the American dream because of legislation similar to the Student Relief Act," said Rep. Dave Loebsack, D-Iowa, as he supported the measure on the House floor Wednesday morning. The Sioux City native had focused many of his campaign speeches on how the government assisted him after growing up in poverty.

Interest rates for subsidized Stafford Loans are at their highest point since the 2000-01 academic year and up from 3.37 percent just two years ago. Financial-aid specialists nationwide advised borrowers to consolidate loans and lock in a lower interest rate before last July's rate hike went into effect.

Statistics show that UI graduates are leaving college with more debt. Fifty-eight percent of graduates in the 2004-05 school year left the university with debt, according to Thomson Peterson's Undergraduate Financial Aid and Undergraduate Databases.

While that's only 2 percent more in debt than 2000-01, the average debt per UI graduate rose by more than $4,000 in that same time period.

Though a majority of GOP representatives voted for the measure - which reduces interest rates by .68 percent every year - many objected to the bill before doing so.

"How can a reduction in student-loan interest rates make college more affordable when the students do not feel the effects until they have left school?" asked Iowa Rep. Tom Latham in a floor speech, voicing a heavily emphasized argument from Republicans that the legislation will not expand access of college to more people but simply make it easier on those who are already in school.

Though he eventually voted for the bill, Latham also criticized Democrats for not allowing any amendments and not involving House Republicans - a common complaint among GOP lawmakers during the first 100 hours of the 110th Congress.

Critics also contended that the bill, which expires in January 2012, will only keep interest rates at 3.4 percent for six months.

The White House also voiced disapproval of the bill but did not go as far as promising to veto the measure.

To pay for the rate cuts, the government would increase fees to lenders who supply private subsidized Stafford Loans and only reimburse 95 percent of defaulted loans.

"There ought to be a net investment in higher education; we shouldn't just be shifting money around," said Tom Joyce, a spokesman for Sallie Mae, one of the nation's largest subsidized Stafford lenders.

Though UI students who take out subsidized Stafford Loans deal with the federal government's direct-loan program, not companies, the increased costs to private lenders would have to be passed on to borrowers because of "razor-thin" margins on student loans.

Joyce also argued, as many Republicans did, that the bill's $6 billion budget would be better spent on increasing funding for Pell Grants.

But Mark Warner, the UI's financial-aid director, said that while Pell Grants should be raised to make college affordable for more students, interest rates for loans also need to be reduced.

"This is a very important piece of legislation and certainly something I support," he said. "We will have students who otherwise would not have chosen to go into graduate or professional study because they're not worrying about their undergraduate loans as much."

Aides to the Senate Committee on Health, Education, Labor, and Pensions - of which Sen. Tom Harkin, D-Iowa, is a member - said the Senate is likely to first address the legislation in a Jan. 25 hearing on higher education.

Loebsack said he also wants to increase funding for Pell Grants, and as one of 10 Democratic freshmen on the House Committee on Education and Labor, he will have a front seat in the legislative debate over financial-aid issues.

"This is only the beginning," he told *The Daily Iowan* after the vote. "This is a down payment."

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