House set to vote today on student loan interest rate legislation that could save borrowers thousands. It’s part of Democrats’ push to ‘make college affordable.’
At the pace he’s going, Isaac Burbank could leave CSU with more than $40,000 in debt. The mechanical engineering sophomore already owes about $21,000 in loans, and taking out more is a possibility for his junior and senior years.
“I still don’t even know how I’m going to finish paying for this year,” he said. “I’m paying loans from this semester to pay for what I couldn’t pay for last semester. It’s year by year, semester by semester.”
As paying for college continues to worry many students, Democrats are ambitiously pushing for making higher-education funding more affordable – and they’re wasting no time.
Future college students could save thousands of dollars on student loans if legislation the House will vote on today passes.
The newly minted Democrat-controlled Congress introduced a bill Friday that would gut interest rates on federally subsidized Stafford student loans in half, raising the ire of lenders like Sallie Mae concerned about reduced profits.
The House is set to vote today on the legislation that would incrementally reduce interest rates to 3.4 percent by 2011, down from their current 6.8 percent rate, saving the typical working and middle class student borrowers about $4,500 over the life of their loans.
“That’s not chump change,” said Robert Shireman, executive director of the Project on Student Debt, in a statement Tuesday.
“But it’s just a start. To address student debt burdens, we also need to do more to reduce the need to borrow, and to provide protections for all borrowers, including students who are in school now.”
Although the full benefit of the new interest rate will be felt only by students entering college in 2011 or later, the first incremental decrease – to 6.12 percent on the unpaid principal balance of the loan – will impact students who receive their first loan disbursement on or after July 1, 2007.
About 5.5 million students receive federally subsidized loans.
Dems tackle college affordability
As Democrats charged into Congressional power for the first time in more than 12 years earlier this month, gutting student loan interest rates was just one of several goals they hoped to tackle within their first 100 hours.
They also promised to make college more affordable.
In addition to chopping the student loan interest rate, Democrats promised to boost the maximum amount students can receive for Pell Grants, a need-based program, to more than $5,000 from just above $4,000 now.
“That would be a huge help,” said Edie Irons, communications associate at the Project for Student Debt. “This is a step in the process.”
Some conservatives, however, lamented the increased burden on taxpayers – hidden, they say, as the funding mechanism for the interest rate cut puts the burden on lenders.
They argue that cutting interest rates will do nothing to make higher education more affordable for low-income students, since students don’t have to deal with loan interest until after they graduate, anyway.
“It’s unclear what exactly the Democrats are trying to do with this proposal,” said Dan Lips, an education analyst with the Heritage Foundation, a conservative think tank.
“Lowering student loan interest rates is going to do little to help low-income students go to college.”
But the group’s opposition to the legislation, House Resolution 5, goes deeper than what’s the most effective way to get lower-income students to college.
“We need to ask if this is fair?” Lips asked. “Three out of four workers don’t go to college. Why should Americans have to subsidize college students, who studies show will make about $1 million over the course of their lifetime (more than those who don’t go to college).”
Increasing student debt
Fewer than half of graduating seniors had student loans in 1993, whereas nearly two-thirds did in 2004, according to the Project on Student Debt.
The average graduate in Colorado had about $16,300 debt in 2005.
At CSU, the average debt was about $16,900 that same year, compared with $13,800 in 2001, according to the Project on Student Debt.
“Even upper and upper-middle class families are having a difficult time affording college,” Irons said. “Qualified students aren’t applying.There’s a fear of debt.”
The number of students with high levels of debt skyrocketed between 1993 and 2004, even after factoring inflation. Only 1.3 percent of graduating seniors had more than $40,000 debt in 1993 (in 2004 dollars), according to the Project on Student Debt. In 2004, about 7.7 percent did.
Although most borrowers don’t owe more than $40,000, the proportion of students with high levels of debt has soared, even at public universities like CSU.
Public universities had fewer than 1 percent high borrowers in 1993 compared to 5.4 percent in 2004, according to the Washington, D.C.-based group.
“More people are borrowing large amounts to pay for college than they ever have before, even after accounting for inflation,” the Project on Student Debt concluded in a study.
“Students with the most debt today have much heavier burdens than the biggest borrowers of 10 years ago.”
Burbank, 20, considered quitting school. While home in Tacoma, Wash., over the summer, a life of scrapping and clawing nearly overwhelmed him.
“I thought about not coming back,” he said.
Last year, he was desperate for cash. He’d donate plasma all year, earning $50 a week for two deposits. And when he wanted to go rock climbing at Horsetooth Reservoir, he packed up his equipment, ripped cardboard off a box, and made a sign that said “To Horsetooth” on one side and “To CSU” on the other.
“I didn’t have a car, it was a beautiful day, and I wanted to enjoy it,” he said, recalling the time he trudged down Elizabeth street with his thumb sticking out.
It was a brush with death over the summer that made him realize the importance of an education.
“I had a near fatal car crash in Washington and decided life was too short to not do something because of money.”
Pell Grants have eased some of the burden, and although the temptation is still there to quit, he’s determined to continue his college education.
Burbank lived on his friend’s futon for a few months last semester, and as of Tuesday evening, he wasn’t enrolled in any classes at CSU because his bill is still outstanding. But he knows the classes he wants and he’ll make it work.
“I’m going to do everything in my power to make it through.”
Opposition from lenders
Tom Joyce, a spokesman for Sallie Mae, said the cuts could impact benefits and services students receive.
“We do not oppose an interest-rate reduction,” he told the Associate Press. “But if the goal is to try to get a low-income or middle-income student into a seat, we’d better be careful of the law of unintended consequences.”
The cost of the interest rate cut is unclear. Some say about $6 billion, while opponents of the measure double that number.
“There’s no new burden on taxpayers,” said Luke Swarthout, a higher-education advocate for COPIRG. “As a first step, this is a policy that will give help to millions of middle and low-income families.”
Isaac, meanwhile, won’t be affected by the interest-rate bill if it passes, since current loans won’t be impacted. But he’s in support of the relief future graduates will feel if the bill clears Congress.
“I’m going to have quite a bit in loans to pay back,” he said. “But they’d be better off taking all that money they’d be cutting and somehow using it to help students while they are in college.”
Managing editor Vimal Patel can be reached at firstname.lastname@example.org.