Before the federal government took a break for the holidays, the U.S. Senate passed changes to financial aid as part of the Budget Reconciliation Act. Eventually, this bill will become part of the Higher Education Act.
Republicans, Democrats and University officials have varying opinions of how these changes could affect the costs of a student’s education.
If the bill passes, interest rates for student loans will be fixed at 6.8 percent and parent loans, currently capped at 9 percent, would be fixed at 8.5 percent.
Other changes include increasing loan limits to $3,500 and $4,500 for first- and second-year students.
The bill also increases the amount graduate students can borrow to $12,000 in unsubsidized loans. Graduate students can now borrow Parent Loans for Undergraduate Students loans, which allow parents to acquire loans to pay for their children’s education.
The bill also reduces origination fees charged to borrowers by 1 percentage point starting immediately. Each year, beginning July 1, 2007, through July 1, 2010, origination fees would be reduced by one-half percentage point.
John Engelen, director of federal relations for the University, said University students will have to pay an additional $3.4 million of origination fees if the bill passes.
Even though the bill is cutting origination fees, it only qualifies for guarantee loans, which are loans made through private lenders, Engelen said.
He also said this bill is making some of the largest financial aid cuts in history.
For direct loans, which are loans given to students through the federal government, origination fees will be doubled, he said.
Brittny McCarthy, education committee staff member for Rep. Betty McCollum, D-Minn., said McCollum is disappointed by the changes to financial aid.
The government will cut $14 billion from the financial aid program, which will result in an increase of $5,800 in loan costs per student.
“The Republican plan to increase student loan fees and interest rates will make higher education more expensive and less accessible to students,” McCollum wrote in an e-mail. “This is an incomprehensibly stupid proposal that hurts college students and hurts America’s future.”
Alexa Marrero, press secretary for the House Committee on Education and the Workforce, said it is not accurate to say student loans are being cut.
“The bill did produce savings from student loans while increasing student access to loans,” Marrero said.
The key reform has to do with making the programs run more efficiently and reducing subsidies paid to lenders.
“We increased loan limits and lowered the fees students paid on their loans,” she said.
Engelen said the U.S. House will vote on the bill in February but that he is not sure whether it will pass.
“It barely passed the Senate, so the House has to vote again,” Engelen said.