Dems downsize loan plan

House to vote today on cutting some student loan rates

WASHINGTON -- The plan by House Democrats to slash rates on some student loans falls short of a proposal the party pitched nearly a year ago in the GOP-controlled Congress.

Their plan, scheduled to be voted on today, doesn't cover all student loans. It covers only federally subsidized Stafford loans targeting some middle-income families.

Education advocates praise the effort as a nice start, but say it won't do much to boost college access at a time of soaring tuition increases. Many would rather see Congress increase Pell grants, which focus primarily on low-income families and don't have to be repaid.

The House plan "is a great way to communicate that you support students and their families," said Kimrey Rhinehardt, vice president for federal relations for the UNC system. "But this is not the panacea for the problem. It's a much bigger problem."

The rate cut would be unlikely to encourage more students to go to college, some advocates say, and it doesn't affect students while they're in school. Instead, it would lower monthly payments for graduates, saving the average borrower more than $4,200 over the life of the loan.

Democrats say the rate cut begins to tackle the affordability issue. Since 2001, tuition has jumped 41 percent at the nation's public colleges and universities and 17 percent at private schools.

In December 2005, Republicans cut $12 billion from the federal student loan program. Pell grants have been flat for five years.

In March 2006, House Democrats wanted to halve the interest rate to 3.4 percent on all student loans. Their effort failed, but it became a campaign issue for the party.

"We should support [students] with a real federal investment in their education -- not a sham that does not help American students and families pay for college," said then-Minority Leader Nancy Pelosi.

New rules for cuts

Democrats announced this month they still hope to cut rates to 3.4 percent, but only on Stafford loans. Such loans are used now by about 5.5 million students, including more than 92,000 in North Carolina.

Even then, the reductions would be phased in over five years. It would cost nearly $6 billion, a hefty number for a party also touting its budget-balancing goals.

"This is a down payment on addressing the college affordability crisis," said Tom Kiley, Democratic spokesman for the House Education Committee. "It is a first step we can take."

U.S. Rep. Bob Etheridge, a Lillington Democrat, said he agrees that Pell grants should be raised, but that saving $4,200 over the life of the loan makes a difference.

"It's imperative we allow students to come out of school with a minimum amount of debt," Etheridge said.

Chris Simmons, who lobbies on federal affairs for Duke University, said that given the government's fiscal restraints, it came as little surprise when Democrats shrunk their goals.

"It's a great step as far as making college more affordable," Simmons said. "As far as getting students into school, it doesn't do much."

He and others hope Democrats will do more in coming months. The Senate version of the bill is part of a larger higher education package and would increase Pell grants, received by nearly 144,000 North Carolina students.

The subsidized loans target mostly middle-income families, with about half going to students in families earning between $26,000 and $68,000 a year, said Bill Parsons, associate director of government affairs at the American Council for Education in Washington. They leave college with an average debt of $13,800.

Parsons said today's vote fulfills a laudable campaign pledge. But he also wants to see an increase in how much students can receive in Pell grants.

"We don't think this is an either/or situation," Parsons said.

Some Republicans labeled the plan "hypocrisy."

"It's a sham and a lie," said U.S. Rep. Virginia Foxx of Banner Elk, a member of the Education Committee and former community college president. "It wouldn't guarantee that one more student would go to college because of this."

Martin Lancaster, president of North Carolina's community college system, said students are savvy enough to consider their pay-back rate when choosing colleges.

"Students, especially at four-year colleges, are becoming more and more dependent on loans," Lancaster said.

Plan relies on lenders

Democrats plan to offset the costs by increasing the money they get from lenders who administer the program. Some lenders warn the interest rate cuts could penalize students as lenders pass on fee increases to students.

North Carolina, for example, runs its own non-profit agency that makes most loans to students in the state. The agency now absorbs most of the government's fees, making the interest rate for students even cheaper than the national rate.

That could change, Rhinehardt said, if the agency has to absorb more costs.

"It's not as easy as, 'We're cutting student loans for students,' " Rhinehardt said. "The challenge is, how are we going to pay for that?"