WASHINGTON – Following up on an election-year promise, House Democrats said Friday they plan quick action to lower interest rates for student loans.
Their proposal, scheduled for a vote next week, would cut interest rates on some student loans in half. However, the college tuition plan has been scaled back since it was first touted on the campaign trail last year.
The interest rate relief would apply only to need-based loans and doesn't help people who take out unsubsidized student loans — a distinction not made in the campaign literature Democrats handed out before winning control of Congress last fall. The measure also abandons a pledge to reduce rates for parents who take out loans to help with their kids' college costs.
The rate cut for subsidized student loans — from 6.8 to 3.4 percent — would be phased in over five years.
The measure would cost just under $6 billion, according to the Congressional Budget Office.
"This legislation will be a vital first step toward helping lower college costs for millions of low- and middle-income students, while keeping our promises to taxpayers to maintain responsible spending," said Rep. George Miller, D-Calif., chairman of the committee overseeing education issues. He introduced the bill and said the House would vote on it Wednesday.
To avoid increasing the deficit, the bill's cost would be offset by trimming subsidies the government gives lenders and reducing the guaranteed return banks get when students default. Banks also would have to pay more in fees.
Tom Joyce, a spokesman for lending giant Sallie Mae, said such cuts could impact the services and benefits students receive.
"We do not oppose an interest-rate reduction," Joyce said. "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."
Education Secretary Margaret Spellings said in an Associated Press interview this week she would prefer that Congress increase Pell grants, which go to the poorest students and do not have to be paid back.
Another Democratic campaign promise was to raise the maximum Pell award from $4,050 to $5,100. Miller said lawmakers will get to that.
An estimated 5.5 million students receive subsidized loans.
A typical borrower with a $13,800 subsidized student loan debt would pay about $22,100 in interest and principal over 15 years at the existing rate. When cut to 3.4 percent, that same borrower would pay $17,700 — or about $4,400 less — over the same period, according to Luke Swarthout, who lobbies on higher education issues for U.S. Public Interest Research Group.
Republican leaders pushed a budget bill through Congress last session that cut $12 billion from the student loan programs. Democrats and student groups argued the money should have been preserved to help cover college costs rather than redirected toward other priorities.
California Rep. Howard "Buck" McKeon, the top Republican on the House Committee on Education and Labor, criticized Democrats for moving the interest-rate bill without first holding hearings to see if it is the best approach.
"This bill, impacting the largest entitlement program within our committee's jurisdiction, has not been vetted by a single committee hearing, has not been part of a bipartisan conversation of any sort," McKeon said.
In the Senate, Massachusetts Democrat Edward Kennedy heads the committee overseeing education issues. He said he wants broad legislation addressing the interest-rate cut and other proposals.
The bill is H.R. 5.