Today,
by a 216 to 214 vote, the U.S. House of Representatives voted to cut
$12 billion from the student loan programs as a part of the budget
reconciliation bill, the largest cut to these programs in their
history.
Rather
than cutting lender subsidies, the bill derives most of its savings by
continuing the practice of forcing student and parent borrowers to pay
excessive interest rates on their loans and by increasing interest
rates for parent borrowers. These cuts will pay for tax cuts for some
of the wealthiest Americans. In the same budget bill that authorized
these student loan cuts, Congress also called for up to $70 billion in
tax cuts that will be finalized this Spring.
“Today
the House of Representatives completed the largest raid on student aid
in history,” explained Erin Eccelston, representative of the Arizona
Public Interest Research Group (Arizona PIRG). “At a time when college
costs continue to rise and students are going deeper into a financial
hole, Congress has mistakenly decided to use students and families to
pay for other priorities.”
Nearly 70 percent of the bill’s total student loan cuts of $20 billion come from students and families. The bill cuts:
-
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 keeping this money in higher education and
using it to pay for additional need-based grant aid or lower student
loan interest rates.
- Approximately $2 billion by increasing the parent loan interest rate from 7.9% to 8.5%.
Other changes to the student loan programs included in this bill that could have a significant impact on borrowers are:
-
$2.2 billion in cuts to critical student loan delivery funds used to
administer the federal student aid programs. Without these funds, the
administration of federal student aid is in jeopardy.
-
$1.4 billion in revenue generated by a new mandatory 1% insurance fee
levied on guarantee agencies for all loans. Lenders could potentially
pass on this cut directly to student borrowers.
he
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.
