WASHINGTON, D.C.—Several
consumer and student groups today criticized Sallie Mae and other large financial
institutions for lobbying Congress to change the federal education loan programs
so student borrowers could no longer lock in a fixed interest rate when they
consolidate their student loan debt, a move that would increase profits for
lenders, but increase the amounts in loan interest paid by student borrowers.
The House Education and
the Workforce Committee held a hearing on the student loan consolidation program
today, in anticipation of potentially changing the consolidation program during
the upcoming reauthorization of the Higher Education Act, which is slated to
occur during the next several months.
In a letter sent yesterday
to the Chair of the House Education Committee, some of the largest players in
the student loan industry, including Sallie Mae and the Consumer Bankers Association,
urged Congress to eliminate the fixed rate benefit in the student loan consolidation
program.
If the interest rate on
consolidation loans was made variable, the average undergraduate borrower with
a $20,000 student loan debt would pay an additional $7,807 in interest costs
over a twenty-year repayment period, using Congressional Budget Office projections
for future interest rates.
"Increasing the costs
of borrowing for students only makes college more unaffordable," said Kate
Rube, the State Public Interest Research Groups' Higher Education Associate.
"At a time in which the cost of a college education is escalating, Congress
should be exploring ways to make loan repayment less burdensome for students,
not more expensive." She cited the need to expand loan forgiveness programs,
end the single lender rule that limits consolidation choices and giving borrowers
a chance to refinance when interest rates are low.
This proposal to increase
student loan costs for borrowers is being considered at a time in which state
budget cuts are driving some of the largest college tuition increases ever,
and Congress has proposed a budget for next year that level funds federal student
aid programs. "For Congress to freeze education funding for the maximum
Pell grant over the last three years while also considering cutting back on
student borrower benefits like consolidation is irresponsible," said Rebecca
J. Wasserman, President of the United States Student Association.
In a letter circulated last
week to members of the House Education and the Workforce Committee, representatives
of the State PIRGs' Higher Education Project, Consumers Union and the Consumer
Federation of America argued that changing the student loan consolidation formula
from a fixed rate to a variable rate will "hit young Americans hard right
at a time when they are already struggling under the heavy burden of paying
for college."
"Students are graduating
from college with increasingly unmanageable levels of debt. The payment shocks
that recent graduates would very likely face with variable rates or under extended
repayment plans threaten their homeownership prospects and long term financial
stability," said Brad Scriber, a spokesperson for the Consumer Federation
of America.
In the letter, the groups
also urged Congress to preserve and expand the Direct Loan Program, retain the
standard ten year loan repayment plan, require student lenders to report positive
loan payment history to all national credit reporting agencies, increase grant
money applied to education costs, expand loan forgiveness programs, eliminate
or reduce loan origination fees, and support financial aid student literacy
at all stages of the loan process.
A college education, like
a home, has become an expensive investment that affects the whole family and
their means of support, and these costs are rising. In the past decade, average
student debt has risen 58 percent, with the average college graduate now leaving
school with more than $17,000 worth of federal loan debt, according to the College
Board's Trends in College Pricing. Under the changes proposed by Sallie Mae
and other lenders, the costs of repaying this debt would substantially increase.
"It's hard to believe
that Sallie Mae, a company created by the federal government to help students
obtain the financing they need to attend college, would advocate a policy change
that could double the amount of interest that students pay on their loans,"
said Ms. Rube.
According to the consumer
groups, the costs of higher education have become as much a consumer issue as
an education issue. "Helping get young Americans on their feet and easing
the enormous burden of paying off their student debt is good public policy,
and the federal student loan consolidation program has provided a tremendous
benefit to hundreds of thousands of young people over the past several years,"
said Luis Figueroa of Consumers Union.
According to a recent Nellie
Mae study, 38 percent of student borrowers delayed buying a home and 30 percent
delayed buying cars due to student loan burdens.
