Congress cuts loan interest rates

June 12, 1998

STUDENTS applying for loans in the United States this summer will be the first to gain from a cut in their interest rates approved by Congress. But a student lobbyist who helped pass the measure called it only a "finger in the dyke" against a tide of student debt.

The federal loan rate for students while in college was dropped from 7.6 to 6.8 per cent under the new Higher Education Act. This could save up to $800 in interest on the undergraduate's average loan of about $15,000.

While the full bill has yet to become law, the interest rate reduction was put into effect early in a legislative sleight of hand. The measure was seen as a remarkable coup by pro-student groups, who pushed the rate change through despite opposition from bankers.

But Ivan Frishberg, of the US Public Interest Research Group, which has 100 campus chapters, said it was "minimal stuff ... so many students are going so deep into debt that it is becoming a barrier to accessing higher education".

Total student borrowing rose 11 per cent last year alone, he said, or 8 per cent in real terms. In a lesson for Britain, he said, student debt began quite modestly in the US but had slid down a slippery slope, with no natural end in sight.

He cited Department of Education figures showing that in the past 30 years, in constant 1996 dollars, the debt burden had grown from $365 million spread over 89,000 loans to $32.5 billion and 8,637,000 loans.

The Republican-controlled Congress has for more than a year been in the process of reauthorising the Higher Education Act. The act governs most of the federal government's grant and loan programmes for students, which in turn account for three-quarters of all student aid.

The House of Representatives approved its version of the bill last month by an overwhelming 414-4 vote, but the Senate has yet to follow suit, and President Bill Clinton must then sign the measure. With final passage not expected until the end of the summer, the loan rate agreement was tacked on a transport bill already on its way to the president's desk.

Disagreements over the details of the act have rumbled on for months. The stakes are high: the bill will channel an estimated $340 billion to students over the next six years, and through them on to 6,200 colleges whose students are eligible for aid. About 80 per cent of the money is in loans, the rest in grants.

The Republicans came into office in 1992 with a conservative anti-government agenda that included abolishing the Department of Education. They demanded inquiries into the rising cost of college, which they suspected of being "tuition inflation" fed by government-backed loans.

Thomas Wolanin, a professor of education science and senior associate at the Institution of Higher Education in Washington, said that ultimately Republicans largely left intact a set of programmes founded in the liberal 1960s, an era they affect to despise.

The Republicans came off badly in the 1996 elections when they were tagged as "anti-education" by the Democrats. Since then, they have been almost more gung-ho on aid to education than the Clinton administration.

In the bill, they backed rises in Pell grants for low-income students, as well as a $140 million "High Hopes" early intervention programme that would pay for college students to counsel and tutor children in high poverty areas.

Please login or register to read this article

Register to continue

Get a month's unlimited access to THE content online. Just register and complete your career summary.

Registration is free and only takes a moment. Once registered you can read a total of 3 articles each month, plus:

  • Sign up for the editor's highlights
  • Receive World University Rankings news first
  • Get job alerts, shortlist jobs and save job searches
  • Participate in reader discussions and post comments
Register

Have your say

Log in or register to post comments