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Congress Considers Bill Cutting Federal Student-Loan Program

Posted on: Sunday, 15 January 2006, 12:00 CST

By Tami Luhby, Newsday, Melville, N.Y.

Jan. 15--Many students and parents are likely to find it harder to pay for college if Congress passes a deficit-reduction bill that contains record cuts to the federal student loan program.

Part of nearly $40 billion in budget cuts, the bill would slash $12.7 billion over five years from federal financial aid. That amounts to about 15 percent of the $83.3 billion total in federal aid for 2003-04. Most of the savings would come from permanently increasing interest rates on the popular Stafford loans and on PLUS loans for parents. The Stafford rate would be fixed forever at 6.8 percent, and the PLUS rate at 8.5 percent. Those rates, which now change annually and are linked to the 90-day Treasury bill, are currently as low as 4.7 percent and 6.1 percent, respectively.

The measure, however, does contain potential good news for some tuition-payers: It features some student-friendly provisions, including creation of a grant for those interested in science, math and certain foreign languages.

The House of Representatives is expected to consider the GOP-backed bill soon after it reconvenes at the end of this month. It was passed by the Senate last month. If passed by both houses, it would require the president's signature to become law, which is expected.

Advocates for students say the cuts will put added pressure on college enrollees at a time when tuition continues to increase. Already, a growing number of students are being forced to take out private loans, which are often costlier.

"This is in some ways the dark ages of federal support of education," said Mark Kantrowitz, publisher of Fin Aid.org, a Web site that helps students through the financial aid process.

Congressional Democrats, meanwhile, say students are bearing the brunt of the deficit reductions because the Bush Administration and Republicans want to finance new tax cuts for the the rich. Instead, the Democrats say, the federal government should be doing more to lower the cost of college.

"At a time when millions of American families are struggling to keep up with skyrocketing tuition costs, it is shameful for Congress to raid student aid in order to pay for tax breaks for the wealthiest Americans," Rep. George Miller (D-Calif.), the senior Democrat on the House education committee, said last month.

Supporters, however, say some of the bill's provisions would increase access to college, particularly among children from lower- and middle-income families. The legislation would increase limits on federal loans for first- and second-year students from $2,625 and $3,500 to $3,500 and $4,500, respectively, while keeping overall borrowing at $23,000 during a student's undergraduate years. It also would reduce loan and origination fees.

Low-income students eligible for Pell grants also would be eligible for a new, so-called Smart grant if they majored in math, science, engineering, computer science, technology or certain foreign languages considered important to national security. "These new funding resources will help our institutions of higher education produce a more skilled American workforce," said Sen. Michael Enzi (R-Wyo.), chairman of the Committee on Health, Education, Labor and Pensions.

The Smart grants, available each year, would range from $750 for freshmen to $4,000 for juniors and seniors.

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Source: Newsday, Melville, N.Y.

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