Student Loan Reform Still Faces Obstacles
With House passage of the 2007 College Cost Reduction Act, student loan reform has moved one step closer to reality, but significant obstacles remain.
The House bill approved Wednesday would increase the maximum Pell grant for low-income students by $500 over the next four years to $5,200 in 2011, cut interest rates on need-based federal loans to 3.4 percent from 6.8 percent, and provide tuition breaks for students who commit to teaching in high-need public schools once they graduate. It would also partly forgive loans of graduates who take public-service jobs, including nurses, first responders, and school counselors.
The bill is the biggest change to college education financing since the 1944 GI Bill, says its sponsor, Rep. George Miller, a California Democrat who chairs the House Education Committee.
The Senate is likely to vote soon on a similar bill, which got committee approval in June. The Senate bill, sponsored by Ted Kennedy, a Massachusetts Democrat and chairman of the Senate Education Committee, would raise the Pell grant an extra $200 by 2012 to $5,400 and doesn't include an interest-rate reduction on federal loans. Nor does it include tuition assistance for those who become public school teachers.
Both bills would cap the amount graduates pay on student loans each month at 15 percent of their discretionary income. Like the House version, the Senate bill would slash subsidies to lenders to pay for the changes.
Senate passage could land a version of the reform bill on President Bush's desk by September, but resistance to the proposed policy changes is growing. Bush's senior advisers said in a statement Tuesday they will recommend that the president veto the bill "because it fails to target the neediest students currently in college and creates new mandatory federal programs that are poorly designed and would have significant long-term costs to the taxpayer." The statement released by the Office of Management and Budget also says the proposed loan-forgiveness policies are an inefficient way to encourage graduates to go into certain professions.
America's Student Loan Providers, an industry group, opposes many of the reforms. It argues that the subsidy cuts would force lenders to wipe out interest rate discounts they now provide to borrowers. Kevin Bruns, the group's executive director, warns that the reduction in profits for loan companies would force some lenders to close up shop, reducing competition and options for students. Republican members of Congress have called the House bill fiscally irresponsible.
At the same time, student and other groups have backed the proposed reforms. The Project on Student Debt praised the House bill: "The combination of additional grant aid, increased availability of federal loans, and payment caps will help students avoid costly private loans and allow them to graduate from college less burdened by debt."