Its Time For Congress To Stand With Working America

As millions of middle class families struggle with college costs, Congress should stand with students and reject calls from the banks to raise interest rates on student loans. With higher gas prices, higher health costs, and higher college tuition, it’s time to give average families a break for a change.

(Letter Sent to Appropriations Committee Chairman Senator Thad Cochran and Ranking Member Senator Robert C. Byrd) June 6, 2006

 

The Honorable Thad Cochran

Chairman, Committee on Appropriations

United States Senate

Washington, DC 20510

The Honorable Robert C. Byrd

Ranking Member Committee on Appropriations

United States Senate

Washington, DC 20510

 

Dear Chairman Cochran and Ranking Member Byrd:

I know that conferees on the Emergency Supplemental Appropriations Act have been asked to include language to increase interest rates on student loans in the Direct Lending program. With college tuition at an all time high, I urge you to reject this request.

As you may know, when the Deficit Reduction Act was signed into law in February of this year, it raised the interest rates on parent borrowers in the Federal Family Education Loan (FFEL) program, but not in the Direct Loan program. I understand that lenders and others are lobbying to equalize rates in the two programs by increasing rates on borrowers in the Direct Loan program. I hope you agree that this is an untenable solution, and I urge you to reject proposals that increase interest rates for any student loan borrower.

Families already struggle to afford the cost of college. Since 2001, public college tuition has increased by 46 percent and more and more students are forced to borrow in order to attend college. The average debt of a public college graduate is $17,600 today, while a private college student graduates with an average of $22,581 in debt. According to the Congressional Budget Office, the interest rate increase being proposed by the lenders will cost parents in the Direct Loan program an additional $365 million over the next five years.

I am attaching for your reference an editorial from last week’s Washington Post that highlights these inappropriate efforts to increase rates on student loans.

Families need our help, especially in this era of globalization, when a college degree is more important than ever before. I hope you agree that we must do all we can to make college more affordable for families, and I urge you to reject any efforts to increase interest rates on student loans in Emergency Supplemental Appropriations Act.

 

Sincerely,

 

Edward M. Kennedy

Fortuitous Error

Congress mistakenly undercharged some student loan borrowers, which might be good news.

Friday, June 2, 2006; Page A18

IT'S ONE OF those classic, only-in-Washington situations: In December, Congress passed a bill designed to cut the federal deficit -- and made a mistake. One of the "money-saving" measures in the bill (in fact a money-raising measure) increased the interest rate on guaranteed student loans made to parents from 7.9 percent to 8.5 percent. However, in their eagerness to get out of town before Christmas, members drafted the legislation in such a way that parents borrowing money using banks and other lending institutions make the new payment, while parents borrowing through the Direct Loan program, which comes directly from the government, will still be paying the older, cheaper rate.

Congress had always intended to fix this anomaly, which kicks in on July 1. But in the meantime, the whole matter has become rather awkward. For one, the error drew attention to the little-noticed fact that parents of college students are being squeezed to pay down the deficit. There has also been some unseemly lobbying by banks -- and, alarmingly, by some college financial aid officers -- to get the government to raise the rates on the direct loans. Many school financial aid offices operate symbiotically with lending institutions, accepting gifts of equipment and other perks in exchange for directing students their way. Clearly, they didn't relish competition from direct loans -- nor did they seem to feel their role involved lobbying for lower rates all around.

The deepest irony, though, is that study after study has shown that direct loans are cheaper for taxpayers than loans that flow through middlemen. But because of the incentives that those middlemen offer colleges, not as many students wind up using the direct loans. Perhaps Congress should just leave its mistake in place, and let students start clamoring for the direct loans -- which would, in the long term, help cut the federal deficit.