Today, by a 216 to 214 vote,
the U.S. House of Representatives voted to cut $12 billion from the student
loan programs as a part of the budget reconciliation bill, the largest cut in
the history of the loan programs.
"Today the House of
Representatives completed the largest raid on student aid in history,"
explained Luke Swarthout, the State PIRGs' Higher Education Associate. "At
a time when college costs continue to rise and students are going deeper into
a financial hole, Congress has decided to use students and families to pay for
other priorities."
Rather than cutting lender
subsidies, the bill derives most of its savings by continuing the practice of
forcing student and parent borrowers to pay excessive interest rates on their
loans and by increasing interest rates for parent borrowers. These cuts will
pay for tax cuts for some of the wealthiest Americans. In the same budget bill
that authorized these student loan cuts, Congress also called for up to $70
billion in tax cuts that will be finalized this Spring.
"We call on President
Bush to uphold the commitment to American economic competitiveness that he made
in the State of the Union address, by vetoing this bill, and pushing for more
affordable student loan policy," said Luke Swarthout.
Nearly 70 percent of the
bill's total student loan cuts of $20 billion come from students and families.
The bill cuts:
- Almost $13 billion from
excessive subsidy payments that student and parent borrowers make to lenders.
This bill uses this money to pay for new tax cuts rather than keeping this
money in higher education and using it to pay for additional need-based grant
aid or lower student loan interest rates.
- Approximately $2 billion
by increasing the parent loan interest rate from 7.9% to 8.5%.
Other changes to the student
loan programs included in this bill that could have a significant impact on
borrowers are:
- $2.2 billion in cuts
to critical student loan delivery funds used to administer the federal student
aid programs. Without these funds, the administration of federal student aid
is in jeopardy.
- $1.4 billion in revenue
generated by a new mandatory 1% insurance fee levied on guarantee agencies
for all loans. Lenders could potentially pass on this cut directly to student
borrowers.
The budget measure will
direct a small portion of the student loan cuts back to students. The bill spends
$3.7 billion on grants for students majoring in math, science and foreign languages.
In addition, the bill will gradually lower charges for some students, known
as origination fees, over the next five years. Finally the bill retains 6.8%
as the cap on student interest rates, a measure that will help protect students
as interest rates continue to rise.
