House to vote on lower Stafford loan rates

Legislation would cut college debt costs for low- and middle-income students who take out subsidized federal loans.

By Jeanne Sahadi, senior writer

NEW YORK ( -- On Wednesday, the House of Representatives is scheduled to vote on legislation that would cut in half the fixed interest rates on need-based Stafford loans for undergraduates over five years.

The bill was introduced last week by George Miller (D-Calif.), chairman of the House Education and Labor Committee.

The College Student Relief Act of 2007 could save the average borrower an estimated $4,400 over the life of the loan, according to the Education and Labor Committee. The average student borrower with need-based loans has an average of $13,800 in debt, according to the Congressional Research Service.

The American Council on Education (ACE) estimates that the provisions of the bill would help approximately 5.5 million low- and middle-income students.

Under the terms of the bill, the rates on new subsidized Stafford loans for college students would fall from 6.8 percent currently to 6.12 percent in 2007; 5.44 percent in 2008; 4.76 percent in 2009; 4.08 percent in 2010 and 3.40 percent in 2011.

The estimated cost of the House bill is close to $6 billion over five years, which will be paid for by reducing the profits and increasing the fees of the top 1 percent of student loan providers, who participate in the Federal Family Education Loans (FFEL) program. That top 1 percent of lenders is made up of about 30 companies that provide 90 percent of all student loans.

Not surprisingly, the lenders are less than pleased. They contend that the cuts to their bottom line will have an impact on student borrowers.

"(The bill) would reduce lender yield, impose new fees on lenders making consolidation loans and reduce insurance provided to lenders on defaulted loans. These budget cuts, when coupled with those made last year risk the ability of lenders to invest in technology, enhance customer service and offer benefits to borrowers," the Consumer Bankers Association said in a statement this week.

The bill is expected to win passage when the House votes on it Wednesday.

In the Senate, however, it is unlikely to be addressed as a stand-alone piece of legislation. But it is expected to be considered as part of the upcoming debate over the Higher Education Reauthorization Act, said Bill Parsons, ACE's associate director of government relations.

Part of that debate is likely to include a discussion about whether to increase the maximum offered by need-based Pell grants to $5,100 from $4,050 per year to students. The Pell Grant hasn't been changed since the 2002-03 academic year.

Also, Senator Ted Kennedy (D-Mass.), chairman of the Senate Health, Education, Labor and Pensions Committees, has said he would support legislation that caps college graduates' monthly loan payments to no more than 15 percent of their income, forgives loans to graduates who go into public service and extend interest rate cuts to parent loans, according to The National Journal publication Congress Daily.


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