Bill aims to rework student loans

LOS ANGELES (U-WIRE) – Senators and representatives from both major parties have come together in support of the Student Aid Reward Act, a bill which is aimed at making college more affordable for lower-income students.

The bill, nicknamed the STAR Act, was introduced earlier this month and would encourage student loans to be provided by the U.S. Treasury rather than by subsidized loans from private companies.

By eliminating the need for the government to underwrite student loans from banks, the STAR Act would generate $13 billion in savings without any additional cost to the taxpayer, according to the Congressional Budget Office.

The bill was introduced by Sen. Edward Kennedy, D-Mass., Sen. Gordon Smith, R-Ore., Rep. George Miller, D-Calif., and Rep. Tom Petri, R-Wis.

Supporters said the bill is necessary to decrease student debt, which is quickly rising.

“Student debt has more than doubled in the last 10 years and in the past few years the cost of college has skyrocketed,” said Sarah Dobjensky, chairwoman of UCLA’s chapter of the California Public Interest Research Group and coordinator of the group’s higher-education campaign, which seeks to reduce student debt.

No groups have publicly spoken out against the bill yet, but some banks and other loan companies voiced opposition to the bill when it was first introduced in 2006.

According to America’s Student Loan Providers, which represents leading providers of higher-education funding, the STAR Act’s savings predictions are based on inaccurate estimates of interest rates and do not take into account administrative costs of the program.

According to a report by the group, “the STAR Act cannot deliver on that promise and would severely compromise the current student-aid delivery system.”

Sallie Mae, America’s largest student-loan company, has criticized funding cuts to private-sector student-lending programs in the past.

Such laws “would result in substantially fewer lenders participating in the program, reduced competition and move us closer to a government-run student-loan monopoly in the Direct Lending Program, supported by an enormous federal-government bureaucracy,” according to a statement by the company regarding similar cuts in the president’s 2007 budget.

But Kennedy argued in a statement that the STAR Act could actually increase competition and benefit students.

“It’s time to inject some real competition into the loan programs, so that they help students – not banks,” the statement read.

And lobby groups in favor of the bill said current federal support for students is inadequate.

“Student aid has been stagnant at the federal level and we have been spending millions subsidizing banks,” said Luke Swarthout, higher education associate at the U.S. Public Interest Research Group.

Dobjenksy added that high debt will directly impact the lives of students who receive loans.

“It affects the decision whether you choose to buy a house or start a family, and it has a huge effect on our entire generation,” she said.

Supporters added that the STAR Act should be of great importance to the student community, especially with recent cuts to other student financial-support options.

“This bill should be something that students should care about because it will help them through college,” said Rebecca Thompson, legislative director of the United States Students Association.

“Students who rely on financial aid should be very interested in this because the Pell Grant has been lower funded for the past few years.”