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Student Groups Mount Aggressive

Student Groups Mount Aggressive
Campaign To Halt Financial Aid Cuts

By Charles Dervarics

Student groups and others are mounting an aggressive, last-ditch effort to stop $12.7 billion in student aid cuts that still require one more affirmative vote on Capitol Hill.

At issue are cuts to student loan programs that are likely to bring higher interest rates for parents or students borrowing funds for college (see Diverse, Jan. 26). These cutbacks make up about one-third of a $39 billion deficit reduction bill that many lawmakers thought they would finish in December.

While both the House of Representatives and the Senate narrowly approved the plan in December, a late parliamentary maneuver by Senate Democrats is forcing the House to vote again on the measure. The vote is tentatively scheduled for this month.

Student aid advocates have a “significant opportunity” to defeat the proposal, says Luke Swarthout, higher education associate for State Public Interest Research Groups. Many House members had little time last month to digest details of the $39 billion in budget reductions before a vote. The 774-page bill was released at 1 a.m. on one of the last days of the session, with a final vote scheduled just five hours later, at 6 a.m., Swarthout says.

“That was done to hide this vote from the public,” he says.
The bill ultimately passed the House by a 212-to-206 margin, but barely cleared the Senate, as Vice President Dick Cheney returned from a Middle East trip to break a 50-50 tie.

More than 10,000 students have called or e-mailed Congress with their concerns about the plan since last fall, Swarthout says, and a diverse coalition of groups continued the effort into January.

If enacted, the bill will raise rates on most student loans to 6.8 percent, and rates on parent loans to 8.5 percent. However, the federal government will still pay lenders at lower market rates, with the federal government pocketing the difference. “Students and parents will be locked in to higher rates,” says Swarthout.

In recent weeks, critics of the plan have also  taken encouragement from a new Government Accountability Office report that says the federal government could save money in the student loan program through other mechanisms. According to the report, the government could save $3.1 billion simply by eliminating subsidies to lenders and handling all loan consolidations through the federal government’s direct loan program.

Many students use consolidation loans to combine smaller past loans into one package at a fixed interest rate. Students currently can obtain these loans through the government’s direct loan program or through private lenders who participate in the Federal Family Education Loan Program, in which banks receive subsidies for participation and are guaranteed minimum yields based on interest rates.

“So far there has been no discussion of direct loan savings,” Swarthout says. “The entire debate is focused on how to raise additional money from students and parents.”

The debate breaks down largely along party lines on Capitol Hill, with Republicans supporting the package and Democrats in opposition. U.S. Rep. John Boehner, R-Ohio, chairman of the House Committee on Education and the Workforce, says the bill will reduce loan fees for students and raise loan limits for borrowers. In addition, the bill includes a new student aid grant program for low-income, high-achieving students.

“This proposal offers significant new benefits to students pursuing a higher education,” Boehner says.

But the senior Democrat on the House panel, U.S. Rep. George Miller, D-Calif., says the program will make college less affordable. “This bill is the largest raid on student aid in history,” he says.

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