January 17, 2007

House of Representatives is scheduled to vote today

Posted in Legislation Affecting Students, Stafford Loans, Student Loan News at 10:20 AM by Joe From Boston

The San Francisco Chronical is reporting that today the House of Representatives is scheduled to vote on H.R. 5, the College Student Relief Act of 2007:

The House of Representatives intends to vote today on a plan to provide relief to millions of future college graduates facing heavy debt, but several education experts say the plan isn’t enough to fix what they consider a dysfunctional national student loan program.

It would be an excellent first step to cut interest rates for subsidized Stafford loans, but it would be just a start, said Barmak Nassirian, an official with the American Association of Collegiate Registrars and Admissions Officers in Washington, D.C.

“It’s a significant shift … to see that Congress is, for a change, going to think about the intended beneficiaries of the program, who are the students,” he said, adding that hasn’t always been the case.

Over the last decade, Nassirian said, congressional discussions about student lending have focused on making private mega-lenders Sallie Mae or Nelnet (National Education Loan Network) happy rather than helping students lessen their debt.

He and other experts favor a top-to-bottom overhaul of a byzantine student loan program that would stop lenders from excessively profiting and create a more borrower-friendly repayment system.

Financial relief to college students is something House Democrats have made a top priority as families increasingly struggle to pay soaring college costs and graduates incur decades of loan and interest payments.

Sponsored by Rep. George Miller, D-Martinez, chairman of the House Education and Labor Committee, the proposal would cut the subsidized federal Stafford loan interest rate from 6.8 percent to 3.4 percent over the next five years and help an estimated 5.5 million students. The loans are dubbed “subsidized” because the meter on interest payments doesn’t start until the student leaves school. But half of all Stafford loans are unsubsidized — meaning interest accrues while a student is in college — and those students wouldn’t see any relief under the plan, continuing to pay the current 6.8 percent interest rate. And it also wouldn’t change other problems experts say contribute to heavy debt — from sky-high repayment schedules for newly minted graduates making little money to stagnant Pell Grants, need-based federal aid that has a maximum annual limit of $4,050.

Miller acknowledged that more needs to be done but said Congress can do only so much at once.

“For students who use the subsidized program, the interest rate cut is a big deal,” Miller told The Chronicle. “It’s an important part of the (equation).”

U.S. PIRG, the federation of nonprofit state Public Interest Research Groups, estimates that once fully phased in, the proposed interest rate cut would save the average California student starting a four-year college in 2011 about $4,830 over the life of a 15-year subsidized Stafford loan, which would average about $15,125.

If the House passes the legislation — HR5 — it will go to the Senate, where some experts predict it could undergo change, and finally the president must sign it into law.

Rep. Buck McKeon, R-Santa Clarita (Los Angeles County), who also sits on the Education and Labor Committee, thinks Congress should instead focus on increasing college access for students by holding universities more accountable for skyrocketing tuition.

“All this does is help those who have already finished their education,” he said. “It basically gives them a bonus for graduating.”

Subsidized Stafford loans once accounted for the majority of loans. In 1996, they made up 57 percent of all student loans, according to the College Board. By 2006, that number had shrunk to 34 percent. That’s because Stafford loans have remained relatively stagnant while college costs have ballooned — a discrepancy that has opened the doors for private lenders. Private loans have grown from 6 percent of all loans over the last decade to 20 percent today, a trend worrisome to many educators because those loans often have high interest rates and lack some of the protections federal loans afford.

Two-thirds of all students at four-year colleges graduate with student loan debt. The average graduating college senior with loans is roughly $19,200 in debt, a 58 percent increase between 1993 and 2004 after accounting for inflation, according to the Project on Student Debt in Berkeley.

But the way to fix that mushrooming debt isn’t with this new proposal, said Tom Joyce, spokesman for Sallie Mae, one of the nation’s leading providers of student loans. Fortune 500 listed it as the 71st most-profitable company in 2005 with $1.9 billion in profits.

Sallie Mae, a private company that originates federal loans, isn’t opposed to cutting subsidized Stafford loan interest rates, Joyce said. It opposes how Miller’s proposal intends to pay for the rate cut. The proposal would, among other changes, essentially reduce the amount of money private lenders can make off loans.

Lenders, Joyce added, provide vital services to colleges including Web technology and covering a fee students owe the government when they take out a Stafford loan. And those services could be in jeopardy.

“At the end of the day, these costs are going to hurt students and schools,” he said of Miller’s proposal. “They’re robbing Peter to pay Paul.”

Miller said he would like to go further. He wants to see an increase in Pell Grants and an examination of what colleges are doing to rein in tuition increases. Robert Shireman, executive director of the Project on Student Debt, thinks the interest rate cut is a good idea, but he has other priorities for fixing the student loan system. He would first like to see a student’s loan payments tied to a percentage of his or her income. He would also like to forgive a student’s remaining debts after 20 years of regular payments. But, he said, he understands there is momentum in the House to pass the interest rate cut and agrees that any help to student borrowers is good.

“It helps to keep higher education and student aid funding on a front burner,” he said.

Nassirian at the American Association of Collegiate Registrars said the window for change in Congress is small. Already, he said, lobbyists for lenders are trying to persuade lawmakers in the new Congress to oppose the proposal.

“This is a mundane business that has been turned into a gold mine … by a handful of companies that have managed to turn riches out of complexity,” he said. “This is corporate welfare masquerading as a federal program.”

He agrees with those who want to increase Pell Grants and create a fairer repayment schedule for borrowers. But, he says, changes need to go further, including no longer having the government essentially guarantee lenders their profits.



  1. Romaine Chritton said,

    Thank you, Obama. Happy banks are no longer receiving a processing fee and then giving the loan back to the Department of Education to manage. This will save families and the Country money. A step in the RIGHT direction!

  2. Romaine Chritton said,

    As I mentioned, the 8.5% interest is a lot higher than the 3% I pain on my National Defense government loan when I was in college from 1968-1972. These are the kind of interest rates that can help families. I paid off my college loans, and plan to pay off the loan we have taken for our children’s educations. The private banks charge a 4% processing fee for Direct Loans, which are government loans and have sold these loans back to the Department of Education. My one son attends Kent State University and all our loans for him are directly to the Department of Education. Our other son attends a private university (receives academic scholarships to cover about 40% of costs) and we have to decide which bank we want to borrow from for our loans. I assume the private university receives some sort of pay back from the banks, while the banks over charge the parents. Again, we have had the banks return these loans back to the Department of Education to reduce their debt AFTER they have received our processing fees and interest for a specified period of time. Why are the banks serving as brokers for the Department of Education? This is another layer in the process of robbing the parents who are not wealthy to have sufficient funds on had to pay for their children’s college tuition. While I am not looking to the government for a free ride, I think it is in my family’s best interest to deal with the Department of Education directly rather than the banks. Kent State does the right thing!!!!

    • Actually, Romaine, there are no “kick-backs” as you call it. Any sort of kick back is explicitly illegal by law. Nor can a school force you to go with a certain bank. Which bank you use is completely up to you.

      Some reasons for the 2 programs (FFELP and Direct) are:
      1)The federal government once tried to make all student loans go through the government. They couldn’t handle it. The customer service got so bad that universities mutinied and pulled themselves out of the Direct program in protest.
      2)Private companies can offer benefits that don’t take an act of Congress to approve. With Direct loans in many case it literally takes an act of Congress. And we know how fast they move…

  3. loanmastre said,

    nice topic gan. saya suka sekali postinganmu

  4. Hi Romaine,

    I wish you the best of luck but I do want to clarify one item. You mentioned the “high interest rate” of Parent PLUS loans. The interest rates for PLUS loans are fixed at 8.5% and that is the second-best rate available to most people. The best is Stafford loans, which is under 7%, but these loans are in the student’s name.

    I would recommend taking out Parent PLUS loans after exhausting all your child’s Stafford money. This is because your next option, Private Loans have an even higher interest rate! This rate is often in the double digits, and they depend on your credit rating. It is only less than a PLUS loan for people with excellent credit histories, and sometimes not even then (it depends on the company).

    So even though the interest rate seems high to you, PLUS loans really are much better for your wallet than Private loans!

    And don’t forget, if you truly are in need, there are grants and scholarships available and your child’s Financial Aid Office may be able to help.

  5. romaine chritton said,

    My husband and I are very hard working parents who want to see our sons’ receive a quality education. Unfortunately, we will probably wind up in the poor house in our old age due to the high cost of education and the high interest on parent plus loans. We also hope to pay off this incredible debt before we pass on. We believe Federal Loans are the safest and the best, so we are very greatful for the opportunity to borrow. Even if we saved and saved all during our two sons’ younger years, we could never have massed the amount of money needed to see them educated. Let’s bring back the American Dream of higher education that is affordable and open to all! Let’s stop the banks and other institutions that keep raping the American Family for more and more profit! Our leaders need to vote for lower interest rates so parents do not have to pay the rest of their lives because of interest rates that exceed home loan rates!

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