Congress moves to halve student loan interest

The U.S. House of Representatives has overwhelmingly approved a bill that will, over the course of a five-year period, cut in half the interest rate charged to undergraduate students supported by certain federally funded loans.

One hundred twenty-four Republicans joined 232 Democrats in endorsing the College Student Relief Act of 2007, which will be paid for by decreasing subsidies to loan-granting agencies. The bill will now be sent to the Senate for review. Should the Senate ratify the bill and President Bush sign into it law, the bill will affect those students borrowing under the Federal Family Education Loan and Direct Loan Programs.

"I think this bill is an excellent first step for the new Congress," Ellen Frishberg, the University's director of Student Financial Services, said. "It has started the

conversation about affordability in a more positive way than in the past."

The interest rate on the affected federally subsidized loans is currently 6.8 percent. If the bill is passed, the rate will fall to 6.12 percent by July 2008 and eventually reach 3.4 percent by January 2012. Frishberg estimated that a student entering repayment this year will save roughly $2000 over the life of his or her loan.

Among the promises Democrats made en route to victory this past November was a pledge to make higher education more affordable. This has led some critics of the bill to suggest that its impact will be negligible and that it was written primarily to make good on a campaign commitment.

But John Sarbanes, representing Maryland's 3rd Congressional District, disagreed with that assessment.

"When you look at the effect that it will have over a period of years, when you look at the actual repayment obligations ... the impact of it is real," he said. Sarbanes serves on the House's Education and Labor Committee and cosponsored the bill along with 210 others.

"The cost of higher education has the potential to become the great new separator in American society," he explained. "It will move us back to a situation in which means, not merit, is what counts."

But Sarbanes hastened to add that the bill does not represent a comprehensive strategy for alleviating the strain of soaring college tuition costs.

"This isn't the end of the initiative," he said. "This is the beginning."

Frishberg, too, pointed out that much remains to be done.

"College is currently affordable to the very poor and the very wealthy. It is difficult for the majority of families in the middle," she said. Poor students are generally able to obtain full coverage of college tuition expenses at public institutions through grant programs, although filing for assistance can be a complex and arduous process.

Whether the new legislation is actually beneficial for struggling middle class families is not entirely clear. Benjamin Ginsberg, a professor in the Hopkins political science department and director of the Washington Center for the Study of American Government, observed that the bill might actually increase the hardship of college tuition for some.

"Lower interest rates and greater availability of federally guaranteed tuition loans is a major goal for [the higher education] lobby because this allows colleges and universities to attract more students and charge higher tuitions," he said. "Generally speaking, a drop in the loan rate is quickly followed by tuition increases across the country."

Still, Frishberg asserted that low-interest federal loans are a good method for reducing the burdens of paying for college.

"There is both a private benefit and a public good at work here," she said. "The federal government should help to finance education -- through provision of loan subsidies for all who need it and grants for the neediest citizens." The overall outcome of such a system, ideally, is a free education for those who cannot pay, without restricting access as often occurs in some European countries where higher education is available at no cost.

Going forward, Sarbanes noted that the cost of higher education can be crippling regardless of the interest rate on college loans.

"The next step, it seems to me, to make a meaningful dent for folks, is to make greater opportunities for grants" Sarbanes said.

According to an article in the Washington Post, in February, the Senate's Health, Education, Labor and Pensions Committee is likely to put forth a proposal that will raise the payout from the federally funded Pell Grant by about $1000.