The House and Senate budget
conferees returned a bill with a net cut of $12.7 billion to the student loan
programs. Rather than cutting lender subsidies, the bill derives approximately
70% of its savings from higher loan interest rates for borrowers and redirecting
excessive student and parent payments to private lenders. While Congress directs
several billion dollars to pay for grant aid and some student borrower benefits,
the bulk of the cuts will be sent out of the program to pay for tax cuts for
the wealthiest Americans.
"At a time when the
entire country believes we need to make higher education more affordable, Congress
is trying to balance the budget on the backs of students," said Jasmine
Harris, Legislative Director for the United States Student Association. "Even
as tuition continues to rise, Congress had decided middle class students and
families should pay even more for college."
The bill generates at least
70% of its savings by making loans more expensive for borrowers: approximately
$15 billion out of the $21 billion in total cuts. Specifically the bill generates:
- Almost $13 billion from
excessive subsidy payments that student and parent borrowers make to lenders.
This bill uses this money to pay for new tax cuts rather than sending it back
to students through additional need-based grant aid or lower interest rates.
- Approximately $2 billion
by increasing the parent loan interest rate from 7.9% to 8.5%.
Two other cuts that won't
necessarily come from students but could have a significant impact on borrowers
are:
- $2.2 billion in cuts
to critical student loan delivery funds used to administer the federal loan
program. Without these funds the administration of the federal student loan
programs are in jeopardy.
- $1.4 billion by mandating
guarantee agencies collect a 1% insurance fee on all loans. Lenders could
potentially pass on this cut directly to student borrowers.
"Conservatively speaking,
this bill generates 70% of its cuts from student loan borrowers," explained
Luke Swarthout, higher education association with the State PIRGs. "However,
the bill does nothing to prevent private lenders from passing on additional
costs, such as a new 1% insurance fee on student loans, to student borrowers."
The hit on students and
parents are part of a larger package of more than $40 billion in cuts to federal
programs like student loans, Medicaid and food stamps. A corresponding package
of $50 to $70 billion in new tax cuts for some of the wealthiest Americans will
be voted on early in 2006.
The budget measure will
direct a small portion of the student loan cuts back to students. The bill spends
$3.7 billion on grants for students majoring in math, science and foreign languages.
In addition, the bill will gradually lower charges for some students, known
as origination fees, over the next five years. Finally the bill retains 6.8%
as the cap on student interest rates, a measure that will help protect students
as interest rates continue to rise.
"The small modifications
this bill makes are helpful but too small to offset the deep and harmful $12.7
billion in overall cuts facing student and parent borrowers," remarked
Swarthout. "This bill is truly and outrage to lower and middle class families
that hope to send their children to college."
The House is expected to vote on the budget bill Sunday night, while the Senate
will likely take up the legislation Monday or Tuesday.
