House cuts loan funding

Cati Vanden Breul

The U.S. House of Representatives narrowly passed a bill at about 2 a.m. Friday that would cut funding for federal student loans by $14.5 billion over the next five years.

In total, the bill calls for $50 billion in budget cuts, including reduced funding for Medicare and food stamps.

Alexa Marrero, press secretary for the House Committee on Education and the Workforce, said the student aid cuts would come in the form of lower subsidies to lenders and a change in the way interest rates are calculated.

Right now, interest rates on student loans are variable, which means they change each year based on the performance of the market. This year the rates are 4.7 percent for students, but are scheduled to change to a fixed rate of 6.8 percent in July.

The House bill would keep the rates variable and cap them at 8.25 percent.

Marrero said this would benefit students because it allows them to pay lower interest rates when the market fluctuates.

“The variable rate really is the best of both worlds. It does have a cap, but it also makes sure students can take advantage of lower interest rates,” she said. “With a fixed rate, they would never have a (4.7) interest rate again.”

But University Office of Student Finance Director Kris Wright said interest rates will most likely keep increasing if the government cannot get the federal deficit under control.

“In the long run students will be paying more,” Wright said.

She said University students already are graduating with record amounts of debt.

In 2002, the average graduate left the University with $13,572 in debt, and by 2005 the average debt was $22,339.

In addition to the possibility of higher interest rates, Wright said the bill would also make federal Direct Loans more costly for students because the government would charge a 3 percent up-front fee next year.

“Student loans are an increasingly important piece in how people pay for school, and anything that raises that cost to students and parents is of concern,” Wright said.

University junior Russ Stone, who pays for school partly with student loans, said he doesn’t think the government should make it harder for Americans to get a college education.

“Why would they make it harder for the less fortunate to go to school?” he asked.

Because the United States puts such a strong emphasis on the importance of education, Stone said, the government should help pay for it.

In a statement, Rep. Betty McCollum, D-Minn., said the budget cuts were uncalled for because they will take money away from students and put it toward tax cuts for wealthy Americans.

“Republicans are making the cuts to student aid in an effort to offset $70 billion in additional tax cuts for the wealthy,” McCollum said.

But Marrero said the numbers are deceiving because many of the cuts proposed in the bill would come from reduced subsidies to lenders and not out of students’ pockets. Additionally, she said, benefits for students such as increased loan limits and decreased fees would actually increase the amount of aid the government is providing to students.

“The vast majority of what this bill does and achieves is reduced subsidies to lenders; it’s really about how to get the most bang for the federal buck,” Marrero said.

Wright said the government is in a tough position because to decrease the national deficit, it must raise taxes or reduce spending.

“There’s always a tradeoff between raising revenue with taxes or fees or cutting programs,” she said.

Hurricane Katrina and the Iraq war have cost the United States a lot of money, she said, and politicians have to figure out how to balance the country’s budget.

“That’s one of their jobs, to figure out how to get more money and balance the budget just like it was a personal budget,” Wright said.

The bill passed the House 217 to 215, with 14 Republicans and all Democrats opposing it.