The U.S. Senate approved a bill to cut $12.7 billion over the next five years from federal student loan programs, but the director of financial aid said students would not be the biggest losers – lenders would. Mike Scott, the director of financial aid, said students should not expect changes in their loan programs, but he said the decision by Congress could result in lenders reducing borrower’s benefits, such as origination fees – money taken out to start loans.
“This isn’t going to affect students at all,” Scott said. “This is going to affect lenders getting their return on loans.”
Staci Chiller, the communication manager of Wells Fargo Education Financial Services, said the bill, which must be reapproved by the House of Representatives because of changes made before the Senate’s 51-50 vote, cuts a majority of its $12.7 billion from lenders’ subsidies. This affects lenders’ repayment, not student loans.
Scott said, as a result, he believes smaller lenders may get out of the student loan business because profit margins will decrease, but established lenders, such as Wells Fargo Bank and Citibank, will not move away from student loans.
Jim Riddlesperger, a professor of political science, said these changes result from budget cuts that will enable Congress to continue to pay for the war in Iraq and the recovery efforts in the Gulf Coast region.
“Obviously, everyone is in favor for higher education,” Riddlesperger said. “This is a conservative Congress that wants to balance opportunities to attend universities with minimizing budget spending.”
Luke Swarthout, the associate director of Student Public Interest Research Groups, said students will bear the brundt of Congress’ decision.
In a press release Dec. 19, the day the House of Representatives passed the bill, Swarthout said students will pay for 70 percent of the budget cuts.
The bill also creates a $3.75 billion budget for a new two-part program that will create “academic competitiveness” grants for low-income freshman and sophomores from academically rigorous high schools.
“The small modifications this bill makes are helpful but too small to offset the deep and harmful $12.7 billion in overall cuts facing student and parent borrowers,” Swarthout said. “This bill is truly an outrage to lower and middle class families that hope to send their children to college.”
In addition, the new two-part program establishes Science and Mathematics Access to Retain Talent grants for juniors and seniors studying in mathematics, science and foreign languages, which Bill Frist, the author of the bill and U.S. Senate majority leader, said on his Web site should save students “up to 75 percent on their college education.”
Jasmine Harris, the legislative director for the United States Student Association, had a different opinion about the budget cuts in a press release from the PIRGs.
“At a time when the entire country believes we need to make higher education more affordable, Congress is trying to balance the budget on the backs of students,” Harris said in a press release from PIRGs. “Even as tuition continues to rise, Congress had decided middle class students and families should pay even more for college.”
Scott said, under the current provisions, federal Stafford loans have a variable interest rate with a cap of 8.25 percent, but interest rates have been as low as 4.7 percent. With the new modifications, student interest rates would be fixed at 6.8 percent.
“There will be consequences to these actions, but what are they?” Riddlesperger said. “What’s the impact? I don’t think we know just yet.