House cuts student loan interest rates

Ilyse Kramer Staff Writer

On Jan. 17, the U.S. House of Representatives passed the College Student Relief Act of 2007, seeking to reduce interest rates on student loans and make college more affordable. The Act, which passed by a vote of 356-71, will next be debated in the Senate.

If signed into law, the Act would cut interest rates on subsidized Stafford loans, which are granted to students on the basis of financial need through two programs. The first, the Federal Direct Loan Program, allows students to borrow directly from the government. The Federal Family Education Loan Program (FFELP), which accounts for the majority of Stafford loans, lets students take out federally guaranteed loans from private lenders.

The bill plans to reduce the borrowers’ interest rates over the course of five years from the current fixed rate of 6.8 percent to 3.4 percent. The first reduction rate is set to occur on July 1, 2007. After July 1, FFELP guarantors would reduce their reimbursement promise from 97 percent to 95 percent.

The final interest rate reduction is set to occur from July 1, 2011 to January 1, 2012. after which the subsidized Stafford interest rate will return to 6.8 percent. To pay for the cuts, the bill reduces payments to FFELP lenders and increases certain lender fees.

According to Director of Financial Aid Michael Fraher, the Student Relief Act would not change Vassar’s system of awarding financial aid. “I do not believe it will have any effect on students applying to Vassar, nor is it a general issue of access to higher education,” said Fraher. “Not to belittle its impact, but it simply makes it less expensive for students to borrow to help pay for their education. Its intent is to provide relief to student borrowing and to reduce the cost to the federal government on the operation of the program by reducing fees that it pays to lenders to participate in the program.”

The composition of a Vassar financial aid package depends on a student’s needs, said Fraher, and may include a combination of a scholarship, loans, and government and other non-Vassar grants. A typical package includes a Stafford loan.

President Catharine Bond Hill explained that the Act will benefit some Vassar students, but noted that it is unlikely to have much of an impact on low-income access to higher education. “I'd rather see the money go toward Pell grants for low-income students, which would have a larger impact on low-income access,” Hill wrote in an e-mailed statement. “The Democrats have said that they will be returning to this issue. Pell grants have declined in real terms over time since they were established, and restoring some of their real value would have a positive impact on low-income students. They are specifically targeted at the neediest students,” she added. Hill also said that the temporary nature of the changes would likely prevent the bill from having much impact.

Dean of the College Judy Jackson also had a generally positive assessment of the bill, but questioned the extent of its effect. “I think that legislators and educators should redouble all efforts to make college affordable for more low-income students,” she said. “I just think that whatever policies we enact should be actually and genuinely helpful to students, and written in plain English so they don’t mask measures that will prove ultimately not to be helpful.”

Fraher emphasized that the Student Relief Act would not change the amount of money that Vassar gives in loans and scholarships. “The Student Relief Act solely lowers the cost of money that is borrowed for students’ education,” he said. “The ability to reduce the amount of loans students pay is something everyone strives to have happen. The Student Relief Act is obviously a good thing.”

Hill reiterated her approval, stating, “The good news is that Congress is talking about low-income access, and thinking about how to change federal policies to encourage greater access.”