House Votes to Cut Student Loan Interest Rates
Legislation to cut interest rates in half on federal need-based student loans passed today in the House of Representatives by a vote of 356 to 71.
"Millions of student borrowers will save thousands of dollars in interest costs over the life of their loans" if the bill becomes law, said Rep. George Miller, a California Democrat and chairman of the House Education and Labor Committee. "College debt is a serious problem and it's hindering our international competitiveness."
Democrats supported the bill unanimously; 124 of 202 Republicans voted in favor.
The legislation now moves to the Senate; President Bush has said he would veto it if passed by Congress.
The bill cuts interest rates on subsidized Stafford loans, currently fixed at 6.8 percent, in five steps, to:
- 6.12 percent this year
- 5.44 percent in 2008
- 4.76 percent in 2009
- 4.08 percent in 2010
- 3.4 percent in 2011
In January 2012, the interest rate will revert to 6.8 percent if the legislation is not extended.
A four-year college student who begins school in 2007 will save about $2,280 over the lifetime of his or her subsidized Stafford loan, according to an analysis of the congressional proposal by the U.S. Public Interest Research Group. The average student beginning a four-year college career in 2011 could save $4,420 if the 3.4 percent interest rate were made permanent.
Last year, more than 5 million students qualified for the subsidized Stafford loans, which are awarded based on financial need.
A student with $20,000 in loans to be repaid over 10 years will have a monthly payment of $230.16 at the current interest rate of 6.8 percent, an analysis by the Project on Student Debt found. If the interest rate is halved to 3.4 percent, the monthly loan repayment drops to $196.84, a savings of $33.32 per month.
The legislation will benefit only students who take out new loans after July 2007.
"Current borrowers will not realize the benefits of this reduction," says Rep. Tim Bishop, a New York Democrat and Education and Labor Committee member. Students who borrow money during the transitional years can consolidate their loans, or lump them together for easier repayment, based on a weighted average of the interest rates on all their loans.
Unsubsidized Stafford loans, which make up 43.2 percent of Stafford loans and are available to all students regardless of need, will continue to accumulate interest at a fixed rate of 6.8 percent while students are in school and after graduation.
Sen. Edward Kennedy, a Massachusetts Democrat, plans to introduce the legislation to the Senate this week, and a vote is expected in February. However, Bush opposes the bill.
"Reducing student loan interest rates would direct federal subsidies to college graduates," he said in a statement, "not to students and their families who are struggling to meet current and future education expenses."
Miller and the new Democratic Congress will tackle college affordability again when they begin reauthorizing the Higher Education Act. Democrats are likely to push hard for increased funding for the Pell Grant program during those deliberations.
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