Student-Aid Experts Criticize Plan to Reduce Federal Student Loan Interest Rates
Yesterday
I wrote about how the newly elected 110th Congress, which is now
primarily controlled by the Democrats, is planning to introduce new student
loan legislation as part of the College Student Relief Act of 2007. This new
legislation would reduce the interest rate on federally subsidized student
loans by half, from 6.8 percent to 3.4 percent, over a five year period. Debate
over this topic is slated to begin Wednesday, Jan. 17, 2007.
Sounds
like a great plan, right, well, maybe not. According to an article titled,
“Democrats’ Plan to Slash the Interest Rate for Student Loans Draws Criticism
From Unlikely Sources,” by Stephen Burd, which appeared in the Jan. 5, 2007
edition of The Chronicle of Higher
Education, “The Democrats have an uphill battle, in part, because the plan
-- despite being popular on the campaign trail and with advocates for students
-- is generating little enthusiasm among the student-aid experts and college
lobbyists whom the lawmakers are trying to get to rally behind it.”
According
to the article, this initiative is one of three promises made by Rep. Nancy
Pelosi D-CA in her bid to help the Democrats gain control of the House. The
other two points included, “raising the maximum Pell Grant, to $5,100 from
$4,050; and increasing the tax deductibility of college tuition.”
Narrowing the College Entrance Gap?
It
looks as though student-aid experts and lobbyists believe the costs of the interest
rate reduction proposal outweigh the benefits, and legislators should be placing
their focus elsewhere, like on Pell Grants and making college entrance more accessible
to low-income students. The article reports, “While the plan would provide some
relief to loan borrowers, it would do little, they say, to accomplish the main
goal of federal student-aid policy: narrowing the gap in college enrollment
between low-income students and their more-affluent counterparts.
‘Cutting
the interest rates in half might have made for a good sound bite,’ Mark
Kantrowitz, publisher of FinAid, a Web site about student aid, wrote in a letter
last month to Ms. Pelosi. ‘But a closer look shows it to be very expensive with
very little student-aid policy benefit.’”
Experts Call for an Increase on Pell Grants
If the
interest rate reduction on student loans is something of a false hero, what do
experts believe would help in closing the gap between low-income and affluent
students attending college? The article reports, “The aid experts and lobbyists
say the Democrats have a historic opportunity to significantly expand the purchasing
power of Pell Grants for low-income students for the first time in more than 25
years. Such an infusion of money into the program could make higher education a
reality for tens of thousands of college-qualified, low-income students who
don't even bother to apply now because they don't think they will be able to
afford it, some higher-education researchers say.”
So,
that begs the question: Are interest rate reductions and Pell Grant increases
mutually exclusive, or can a proposal be drafted that takes both into account?
In his article, Burd points to Luke Swarthout, U.S. PIRG’s higher education
advocate who he says, “takes exception to the idea that increasing spending on
Pell Grants and cutting interest rates are mutually exclusive. ‘We see cutting
interest rates as just one piece in a larger set of policies we support to make
college more affordable,’ he (Swarthout) said.’ ”
It is important to keep up to date on all the news regarding
student loans and education.
Talk to the education financial advisers at NextStudent.
They have all the information and advice you need on student loans. Check out www.nextstudent.com.
Be sure to tune in next Tuesday for my next blog about this
week in student loans.
Student Loan Girl