Not What It Appears: College Student Relief Act of 2007
According to a March 2, 2007 article written by Olivia Majesky-Pullmann titled, “Just the Stats: Will Student Loan Interest Rate Cuts Really Help Low-Income Students?” that appeared in Diverse: Issues in Higher Education, “The College Student Relief Act of 2007, recently approved by the U.S. House of Representatives, has been hailed as a savior for students trying to handle the ever-rising costs of college. Phased in over five years, the interest rate on federally backed loans will be cut in half, from 6.8 percent to 3.4 percent. But some say the cut isn’t the saving grace politicos make it out to be.”
Majesky-Pullmann quoted U.S. Rep. George Miller, D-CA, of the House Committee on Education & Labor, as saying, “Once fully phased in, these cuts would save the typical borrower, with $13,800 in need-based federal student loan debt, $4,420 in savings over the life of the loan,” pointing out that he is “relying on an analysis by U.S. PIRG. The new interest rate will drop to 3.4 percent by 2001, but on January 1, 2012 the rates will go back to 6.8 percent.”
In the article, Majesky-Pullmann reported that, “U.S. PIRG, a public interest advocacy group, has said Miller’s office has misquoted its findings. Miller’s prediction assumes that the interest rate at its low of 3.4 percent will be permanent, although the act is scheduled to expire in 2012. A student with $13,800 in debt might save $4,420, but only if the rate was not scheduled to go back up to 6.8 percent in 2012.
“Even if the 3.4 percent interest rate were to be extended, it would only help borrowers taking out loans in 2012 or later. Unlike a mortgage, when the rates drop, students with existing loans do not have the capability to re-finance at the new, lower rates.”
Who is Affected by the STAR Act?
Although the STAR Act is being touted as one that will help low-income students, Majesky-Pullmann summarizes Mark Kantrowitz, publisher of FinAid.org, as saying “there are several misleading errors in Miller’s claim. He says the committee overstated the average cumulative subsidized Stafford Loan debt of $13,800 for undergraduate borrowers because they didn’t account for two-year students when they averaged the per-student debt. The actual total debt for four-year degree completers in 2003-2004 totaled $10,667, and is projected to increase to $12,000 in 2007-2008. Two-year degree completer’s debt was $5,488 in 2003-2004 and will increase to about $6,200 by 2007-2008.
“When combining unsubsidized and subsidized student loans, the total average cumulative debt is roughly $13,800, thus saving the borrower approximately $4,400 at 3.4 percent with a 15-year repayment term. ‘Since the 3.4 percent interest rate is limited to a six-month period, it is unreasonable to assume that all of the subsidized Stafford loan debt will be at this rate,’ Kantrowitz says.”
The STAR Act Does Not Make College More Affordable
In the long run, the STAR Act does not make college more accessible or affordable for low-income students nor does it benefit the taxpayer. Majesky-Pullmann wrote, “Kantrowitz says the U.S. government will lose billions in interest revenue because of the lower interest rate,” and quoted him as saying, “It is misleading to say that the legislation makes college more affordable for needy students at no new cost to taxpayers.”
Additionally, Majesky-Pullmann reported, “Thomas G. Mortenson a policy analyst with Postsecondary.org, has a similar view on the proposed act, ‘My concern is that this idea does nothing to make college affordable. It does nothing to reduce the $32 billion in unmet financial need that we identified from the 2004 NPSAS study.’”
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Student Loan Girl