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House Democrats scale back plan to cut rates on student loans

WASHINGTON—The plan House Democrats will push Wednesday to slash rates on some student loans falls short of a proposal they pitched nearly a year ago when the Republicans controlled Congress.

The House Democrats' plan doesn't cover all student loans—only federally subsidized Stafford loans targeting some middle-income families—and it will take five years to phase in. And though education advocates praise the effort as a nice start, they say it won't do much to boost college access at a time of soaring tuition increases.

Many would rather see Congress focus its efforts on increasing Pell Grants, which focus primarily on low-income families and don't have to be repaid.

"It's a great way to communicate that you support students and their families," Kimrey Rhinehardt, vice president for government affairs at the 16-campus University of North Carolina system, said of Wednesday's vote. "But this is not the panacea for the problem. It's a much bigger problem."

The rate cut would be unlikely to encourage more students to go to college, some advocates say, and it doesn't affect students while they're in school. Instead, it would lower monthly payments for college graduates, saving the average borrower more than $4,200 over the life of the loan.

Democrats say the rate cut begins to tackle the affordability issue. Since 2001, tuition has jumped 41 percent at the nation's public colleges and universities and 17 percent at private schools.

In December 2005, Republicans cut $12 billion from the federal student loan program in the budget reconciliation bill. Pell Grants, which go to the neediest students, have been flat for five years.

In March, Democrats wanted to halve the interest rate to 3.4 percent on all student loans. Their effort in the House failed, but it became a campaign issue for the party.

"We should support (students) with a real federal investment in their education—not a sham that does not help American students and families pay for college," said then-Minority Leader Nancy Pelosi.

After doing the numbers, Democrats announced this month that they hope to cut rates on just federally subsidized Stafford loans, used now by about 5.5 million students.

Even then, the reductions would be phased in over five years and would cost nearly $6 billion to implement.

"This is a down payment on addressing the college affordability crisis," said Tom Kiley, Democratic spokesman for the House Education Committee. "It is a first step we can take."

Some Republicans labeled the plan "hypocrisy."

"It's a sham and a lie," said Rep. Virginia Foxx of North Carolina, a member of the Education Committee and former community college president. "It wouldn't guarantee that one more student would go to college because of this."

Educators hope Democrats will do more in coming months. The Senate version of the bill comes as part of a larger higher education package and would increase Pell Grants.

The subsidized loans target mostly middle-income families, with about half of the loans going to students in families earning between $26,000 and $68,000 a year, said Bill Parsons, associate director of government affairs at the American Council for Education in Washington. Those students leave college with an average debt of $13,800.

Democrats plan to offset the costs by increasing the money they get from lenders who administer the program. Some lenders warn the interest rate cuts could actually penalize students as lenders pass on fee increases to students.

"A lot of lenders say they won't be able to offer as high-quality services to students," said Joe Cronin, president of The Student Loan Network, a lender in Quincy, Mass. He, too, favors increasing Pell Grants, but said few would outright oppose cutting student interest rates.

"I think the Democrats in Congress are in favor of it because it sounds really nice," Cronin said. "Overall, there's definitely better ways that money could be spent."


(c) 2007, McClatchy-Tribune Information Services.

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