Bill threatens students' wallets

As tuition costs continue to increase, student budgets could be squeezed even tighter by proposed congressional legislation that would cut billions from student loan programs.

What happened?

On Dec. 21, after Vice President Dick Cheney cast the tie-breaking vote, the Senate passed a budget reconciliation bill that included a $12.7 billion reduction in student loans.

The cut to student loans is the largest included in the bill created to decrease government spending by $39.7 billion in five years.

The cut also is the largest in the history of federal student loan programs.

What happens next?

The budget reconciliation bill must be sent back to the House for final approval. The House will vote on the bill after it reconvenes Jan. 31.

Is the bill likely to pass?

"The vote will be very close," said Luke Swarthout, higher education associate for the State Public Interest Research Groups' Higher Education Project.

Earlier versions of the bill faced stiff opposition from Democrats and moderate Republicans.

Swarthout said he is optimistic that the bill will be defeated now that members of Congress have had time to fully consider the bill's negative impact on students.

"We have an uphill fight," said Tony Pals, director of public information for the National Association of Independent Colleges and Universities.

"It's a fight that we may be able to win if enough legislators hear from their constituents," he added.

Before its December recess, the House passed a similar version of the bill by a six-vote margin, 212 to 206.

The original House version of the bill, before intense negotiations with the Senate, passed on Nov. 18 by a two-vote margin, 217 to 215.

What if the bill passes?

Federal student aid would be reduced by $12.7 billion. Most of the cost savings would come from increasing interest rates on student loans.

"Simply put, it will make college less affordable," Pals said.

How would interest rates change?

Students would pay a fixed 6.8 percent rate on Stafford loans, an increase from current rates. (Stafford loans now have a variable interest rate capped at 8.25 percent. Rates are tied to market conditions.)

Rates on parent loans would increase from 7.9 percent to 8.5 percent.

When would the new interest rates go into effect?

New interest rates would go into effect in July 2006.

How would the increases affect student borrowers?

The impact on individual students would depend on the amount of money borrowed and the amount of time used to pay off loans.

The State PIRGs' Higher Education Project estimates that the average student, who leaves school with $17,500 in loans, would owe $5,800 more in interest payments if the bill is signed into law.

What would the additional revenue be used to fund?

The additional revenue created by raising the interest rates on student loans could be used to fund tax cuts as part of congressional deficit reduction efforts.

"The problem is Congress is asking middle-class students to be revenue generators for wealthy Americans," Swarthout said.

 

Contact the State & National Editor at stntdesk@unc.edu.