‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ On Wednesday Jan. 17, the House of Representatives debated and passed legislation that would cut certain student loans in half over a period of five years. 124 Republicans joined a nearly unanimous’ group of Democrats to pass the bill (H.R. 5), the College Student Relief Act of 2007, by a margin of 365 to 71. It was’ fifth of six bills that Democrats had vowed to pass within the new Congress’s first 100 hours of legislation. Democrats also pledged to address other ways to make college more affordable, later in the year.
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The College Student Relief Act of 2007 would cut the current rate on the federally subsidized Stafford student loans’ from 6.8 percent to 3.4 percent in stages over a five year period. This will come at a cost of $6 billion to tax payers. To cover this cost, the bill would reduce the government’s guaranteed return to lenders’ who make the student loans, require banks to pay more in fees, and also cut several subsidies that the federal government currently pays to banks, guarantee agencies and other participants in the federal guaranteed loan program. For instance, under the current program of subsidized Stafford loans, the government guarantees lenders a rate of return that can be higher than the interest rate paid by the student. In financing this proposal, the House decided that the bill would lower the rate by 0.1 percentage points for the largest lenders. It will also cut payments that lenders receive if a student defaults.
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While Pell grants go to students with family incomes under $40,000, Stafford loans also benefit the vast majority of middle-income students who are also in need on financial aid with the soaring cost of colleges. About three fourth of students who hold Stafford loans are from families with household incomes under $67,000 just above the median income for a family of four, which is $65,000, said Luke Swarthout, advocate for the U.S. Public Interest Research Group Higher Education Project, to the ‘New York Times.’
‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ However, this bill did not hold up to the campaign promise made by House Speaker, Nancy Pelosi, to cut all student loans in half, nor does it hold up to the broader goal of lowering interest rates for college loans that parents take out for their children. Critics also argue that the bill, which expires in Jan. 2012, will only keep interest rates at 3.4 % for only six months before rates’ begin to’ rise again.
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Student advocacy programs though, applauded this effort. Mr. Swarthout said ”It [the bill] will save millions of students thousands of dollars on their debt.” According to the Project on Student Debt, a nonprofit group, the bill would save $4,000 for a student who graduates from college with $20,000 in debt over the 10 year life of a loan.
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However, the student loan industry criticized the bill when it had already received $12 billion in reduced payments from the government last year as part of the larger, Republican led deficit reduction effort last year. Professor Sanderson, the Co-Chair of the Department of Economics, said ‘Currently, we are in a time of high interest rates (5% and up) so this [bill] may result in fewer lenders.’
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The Bush administration questioned the new bill with regards to encouraging more loans rather than focusing on grants. In a statement issued by the Office of Management and Budget, ‘Student debt loads have soared in recent years, and it is not clear that encouraging more loans is a wise course. Instead, the administration would support efforts’ at direct savings to additional grant support for low-income students.’ Many Republicans also contend that the $6 billion budget should be spent, maximizing the Pell grant to $5,100.
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In a world of rising college education costs, there has been an increase by 35% over the last five years. The average cost of a public college is nearly $13,000 while for private colleges, it is about $30, 367, according to the 2006 College Board report, ‘Trends in College Pricing.’ The average college student now graduates with nearly $18,000 in debt. ‘ The bill would affect the 5.5 million students who currently receive the need based federal tuition loans. For Stony Brook students, in the 2005-06 academic year, 50% of Stony Brook students took out the subsidized Stafford loan while 6% of students have parents who took out the Plus loan, according to the Stony Brook Financial Aid Office. ‘ ‘ ‘
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A companion bill, the Student Debt Relief Act, will be co-sponsored by Senator Edward M. Kennedy, Chairman of the Senate Health, Education, Labor and Pensions Committee. His bill will increase the Pell Grant from $4,050 to $5,100 and cap federal student loan payments at 15% of a borrower’s discretionary income.’ It will also forgive student loans after 25 years, and provide an option for 10-year loan forgiveness for individuals in public service careers, like teaching, law enforcement, and social work. In a statement issued on his website, he wrote, ‘The crisis in college affordability affects every low and middle-income family in America, and is threatening our economic progress as a nation’hellip;Students should not have to mortgage their futures in order to attend college.’
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The Director of the Office of Student Financial Aid Services, Jacqueline Pascariello, called the bill ‘a good first step.’ In response to Senator Kennedy’s companion bill, she said, ‘The nice part is freeing payment to 15% of your discretionary income because this allows you to make your monthly payments and still live.’
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According to Professor Albert Cover, the Director of Undergraduate Studies in Political Science at Stony Brook, the new bill ‘would make college expenses a smaller burden on students. However, students who have already taken out substantial loans under the existing rules would not get much benefit from the new program.’ In addition, he said,’ ‘By making it easier to handle debt, it may marginally advantage private colleges at the expense of public ones since the lower cost of the latter will no longer comprise a larger advantage.’
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The Senate will address the legislation in a Jan. 25 hearing on higher education.
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