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Student Loan Rates Next Target of New CongressJanuary 16, 2007—After passing the ethics provisions that will put substantial new limits on staff gifts and travel the House is poised to address a campaign promise that featured prominently in 2006. Making college more affordable was heard frequently during the last election cycle, and Speaker Pelosi intends to bring legislation to the floor that will significantly reduce the interest rate on certain federal student loans from a fixed rate of 6.8% to 3.4% by 2011. The bill is HR 5. The loans that would be affected are need-based student loans known as Stafford loans. They are known as subsidized loans because the Federal Government pays the interest while the student is in school, for six months after they graduate, and during periods of deferment. Only new loans will qualify for the reduced rates. In order to mitigate the total cost of reducing the rate, it will be phased in over the next five years.
Stafford loans are primarily used by low- and middle-income families. Ninety-four percent of borrowers families have incomes under $40,000 a year. The proportion of families with incomes above $80,000 a year that access Stafford loans is also increasing. Up to 40 percent of students from that income level are now becoming borrowers. Congress plans to pay for this by reducing some of the discounts given to lenders. By shaving off a few percentage points on reinsurance rates, origination fees, and other breaks given to lenders, Congress found enough money to make the interest rate reduction budget neutral so it can comply with its own pay-go provisions. Pay-go means that any increases in funding must be countered with complimentary cuts or revenue enhancements. | ||||
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© 2008 The Association of Educational Publishers | ||||
