In a bipartisan vote last
Friday, the House voted to permanently close a student loan loophole that has
cost the federal government and taxpayers billions of dollars in recent years.
In a 224-178 vote, the House passed an amendment to end the '9.5 percent loophole,'
a provision that has guaranteed lenders a return of 9.5 percent on some student
loans, even as the set student loan interest rate has been at 3.4 percent or
less over the past year.
The Government Accountability
Office has estimated that the federal government has lost $1 billion a year
due to the 9.5 percent loophole. Despite Congress passing a partial closure
last Fall, the 9.5 percent loophole cost the government $262 million for the
first quarter of 2005, according to reports in The New York Times, in part because
the closure allowed lenders to continue 'recycling' 9.5 percent loans to preserve
the guaranteed interest. The GAO estimated last year that recycling is responsible
for between 25 percent and 40 percent of the $17 billion in outstanding 9.5
percent loans.
"Fully and permanently
closing this loophole is an important step for Congress to take, " said
Kate Rube, "Especially in a year in which Congress is shortchanging student
aid funding, we need to ensure that not one education dollar that could go to
help make college more affordable is being wasted."
Forty-two Republicans joined
181 Democrats in approving the amendment, which was sponsored by Congressman
Chris Van Hollen (D-MD) and offered on the House floor to the appropriations
bill for the Departments of Labor, Health and Human Services, and Education.
Congress first guaranteed
the 9.5 percent return in the 1980's, when interest rates were significantly
higher, for lenders using tax-exempt bonds to make student loans. This guarantee
was discontinued in 1993, but Congress left open a loophole that has allowed
lenders to obtain the 9.5 percent guarantee for pre-1993 bonds that are refinanced.
Despite closing the 9.5 percent loophole, the House spending bill froze funding
for most student aid programs for the fourth year in a row. It also provided
only a $50 increase to the maximum Pell Grant award, half of that called for
by the President's budget this year and far less than the $450 increase advocated
for by the higher education community.
"Once again, Congress has left students and families out in the cold to
deal with rising college costs," said Rube of the passed spending bill.
