Democrats pledge to slash interest rates

December 1, 2006

Democrats who won control of the US Congress in last month's elections are promising more financial aid for students and their families, writes Jon Marcus.

While critics question where the money will come from, there was speculation that some of the cost would be carved from subsidies given to the student-loan industry, which supported the Republicans financially in the run-up to the election.

George Miller, a Democratic congressman from California who is likely to take over chairmanship of the House Committee on Education and the Workforce from his Republican counterpart, said that the Democrats' first higher education priority would be to cut interest rates on student loans by 50 per cent, from 6.8 per cent to 3.4 per cent. "We want to lower interest rates on the cost of college for students who are discouraged by debt," Mr Miller said.

But Republicans, who cut $12 billion (£6. billion) from government loan funding last year to help reduce the federal budget deficit, claimed that the Democrat proposal would cost $150 billion over the next decade.

While the Democrats control the House and Senate, their majorities are not big enough to override any presidential veto.

Democrats also want to raise the amount of the principal government scholarship, the Pell Grant, by 26 per cent, from $4,050 a year per student to $5,100. President George W. Bush wants the figure kept at $4,050. The Democrats have also promised to allow greater tax deductions for families who pay university tuition fees.

Many of these issues are bundled under the Higher Education Act, set for renewal next year.

The Democrats have proposed increases in federal research spending for universities, which has been stagnant or decreased under the Republicans.

While they support removing restrictions on government spending on stem-cell research, they are unlikely to succeed in changing those policies because of the threat of a presidential veto.

Other, less obvious, repercussions of the election are emerging. The student-loan industry, for example, which a nonpartisan watchdog reported was one of the heaviest backers of Republican candidates, feared that Democrats would take revenge by not only reducing the interest rates on student loans, but also by cutting government subsidies for them and allowing universities to provide loans directly to students.

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