Bill threatens federal loan interest rates

Rachel Abbey

Students may soon be able to borrow more money through federal loans – but the government would also be able to take more from students.

A budget reconciliation bill will most likely create federal savings by increasing the cost of borrowing loans, said Mark Evans, director of student financial aid.

The bill is trying to balance the federal government’s budget by cutting funds to programs. It could trim up to $12.7 billion from student loan programs, about a third of the total proposed cuts, according to The Chronicle of Higher Education. A final draft of the bill still needs to be approved by both the Senate and the House of Representatives.

Currently, interest rates for federal loans can change, but they will become fixed if the budget bill passes, Evans said.

For example, the interest rate for a Stafford loan was 4.7 percent this past year, Evans said. The proposed fixed interest rate would rise to 6.8 percent.

“It’s legislature that fails to express an appreciation for the value of the higher education investment,” Provost Paul Gaston said.

Countries that invest in their education, such as Ireland and Israel, are seeing economic growth, Rep. Tim Ryan said. Education is a long-term investment in the economy.

“We’re kind of biting off our nose to spite our face here,” he said.

The bill, as well as appropriations bills also in Congress, would cut or freeze funding for student aid programs, Gaston said.

“As far as the whole deal goes, we’re cutting education spending and making higher education less accessible to students and adults who need assistance from the government,” Ryan said. “It’s just a shame because there’s a lot of kids we need to encourage to get into school.”

Last year, rates were the lowest they had ever been, Evans said. The rise seems extreme when rates have been so low, but interest rates reached 10 percent and 12 percent in the 1980s.

About 21,000 to 22,000 students at Kent State – more than half the student body – use subsidized, unsubsidized or parent federal loans, Evans said. In contrast, only about 2,700 students use a Perkins federal loan, the next largest program at the university.

“In a time when we’re desperately in need of more college graduates and participants of the advanced workforce, it’s not a good idea to make it harder for students to get into higher education,” said Constance Hawke, director for federal relations and associate university counsel.

“Why of all things would you be targeting student financial aid to balance the federal budget? Don’t do it on the backs of the students,” she said.

Some of the projected savings would come from these increased interest rates, Evans said. Other measures would give lenders less income from the loans, which would not affect students.

Some of the bill’s provisions could even be helpful to students, raising the amount of money freshmen and sophomore students could borrow, Evans said.

For example, Stafford loan limits for dependent freshmen could go from $2,625 to $3,500, and sophomore limits could rise from $3,500 to $4,500, he said. However, the maximum amount a student could take out as a dependent undergraduate would stay at $23,000. Technically, a student could run out of the maximum amount of money they can borrow earlier.

“Many of our students graduate without hitting that maximum,” Evans said.

The budget bill has looked at many of the financial issues from the Higher Education Act, but not all of them, Evans said. If the bill passes as is, a lot of detail work will still have to be done.

The bill also created some additional issues for the Higher Education Act to handle. Legislators want to give money to students in the science, math, technology and engineering fields, Gaston said. However, the funds only would be available to students who came from high schools with strong academic programs.

The Higher Education Act would have to decide how the government would track students’ majors and what makes a high school strong academically, he said.

Contact administration reporter Rachel Abbey at [email protected]