Democrats Plan Evolves (and Narrows)

Student loan interest rate cut to be early steps of new Congress -- but will apply only to subsidized loans for undergrads.
January 5, 2007

Perhaps the realities of governing are setting in.

On the campaign trail, and even in the first giddy days after they swept into power in November's elections, Congressional Democrats discussed an expansive (and expensive) plan to make college more affordable for students. Among its elements: Slashing the interest rate on student loans in half, making permanent a tax deduction for college costs borne by middle income families, and providing significant increases in the Pell Grant (up to a maximum of $5,800 over several years). Taken together, those proposals were estimated, roughly, to cost anywhere from $50 billion to $100 billion, leading to serious questions about where they'd find the money to pay for it.

As the 110th Congress formally opened Thursday, with Democrats in control for the first time in 12 years, party leaders offered up a much narrower (and more realistic?) agenda for what they hope to do for students, at least in the short term. In a news release and a briefing with higher education lobbyists Thursday, aides to Rep. George Miller (D-Calif.), the new chairman of the House Education and the Workforce Committee, said that they planned to introduce a week from today legislation that would halve the interest rate paid by undergraduate borrowers with subsidized federal student loans -- and would phase the cut in over five years.

The legislation, H.R. 5, on which party officials said the full House would vote on January 17, as one of its first legislative actions, would cut the rate on those loans from 6.8 percent to 3.4 percent in five steps: to 6.12 percent in 2007; 5.44 percent in 2008; 4.76 percent in 2009; 4.08 percent in 2010; and 3.4 percent in 2011.

"Once fully implemented, these cuts will save the typical borrower -- with $13,800 in need-based loan debt -- approximately $4,400 in interest costs over the life of his or her loan," the Democrats' news release said. 

Congressional aides told college lobbyists in a telephone call Thursday that the proposed interest-rate cut would cost an estimated $6 billion over five years. That's down significantly from the $18 billion to $30 billion that earlier iterations of the plan had been reported to cost, and some of that reduction has been achieved by phasing the cut in over five years (rather than making it immediately), limiting the reduction to subsidized Stafford loans (as opposed to Perkins and parental loans) and undergraduates, and by excluding consolidated loans.

But some college officials said they worried that the plan might end up helping even fewer students, once all the details of the proposal spill out. On Thursday, Democratic officials provided few specifics about the proposal, most notably providing no information about how they planned to pay for the cut. (Among the other changes that Democrats have promised in the 110th is to strictly enforce rules that require all legislation that costs money to include offsetting savings.) House aides said the decision about how to pay for the rate cut would be made by the party's Congressional leaders.

The proposal excites advocates for students. In a report released today, the U.S. PIRG's Higher Education Project trumpets the benefits for borrowers as a significant step toward attacking the problem of mounting student debt.
“Over the past decade we have asked America’s college students to shoulder a heavy burden of debt to pay for college,” said Luke Swarthout, U.S. PIRG's higher education advocate. “Cutting interest rates on student loans will help millions of working and middle-class students and their families by saving them thousands of dollars in student loan payments.”

College lobbyists, too, said they were pleased, especially from a symbolic standpoint, that Democratic leaders were putting aid for students at or near the top of their to-do list in the new Congress (the interest-rate cut is one of a small number of key actions that the party has vowed to take in its first 100 hours of legislative activity, which is expected to stretch out for a couple weeks).

But several said that they were left uneasy by the dearth of details about the interest rate cut, and by how little Democratic aides had to say about the other college aid priorities, like raising the maximum Pell Grant, that candidates had so much to say about on the campaign trail. (Some also expressed disappointment that the Democrats' first point of attack was on a loan proposal aimed very much at the middle class, rather than at the financially neediest students, and wondered whether funds will ultimately be there to do much for Pell and other need-based aid.)

Thursday's news release from House Democrats sought to provide reassurance that the interest-rate cut, if narrower than originally promised, was just the beginning of their efforts to help students. The statement specifically mentioned "raising the maximum Pell Grant scholarship" as one such strategy, which college officials probably appreciated.

But it also reinforced the idea that despite the fond hopes of many in higher education, Democrats weren't likely to leave colleges and universities off the hook on accountability issues. Among the other steps Miller and other Democrats will explore to make college more affordable for students, the the news release noted, were "working with colleges and other relevant stakeholders to devise strategies to address costs, and examining the cost effectiveness of the different student loan programs."

The House is expected to vote today on legislation that would require much more public disclosure about earmarked projects (hundreds of millions of dollars of which flow to colleges) and which lawmakers have sponsored them.


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