If the Democratically controlled U.S. Congress gets its way, college students may have an easier time financing their educations.
But two student debt relief bills recently passed by the U.S. House may encounter difficulty in the Senate, where the Democrats maintain a much slimmer majority than in the House.
Additionally, increasing the cap on student Pell grants is part of President Bush's proposed $2.8 trillion 2008 budget, which he pitched to members of Congress Monday as part of his effort to curb spiraling government entitlement spending. But along with those benefits, the president's budget also includes significant cuts in federal subsidies for student lenders.
Bush has stated he does not support the Democrats' plan to decrease the student loan rate, saying lowering the student loan rate only encourages more borrowing.
"It is not clear that encouraging more loans is a wise course," Bush said in a release.
That means Congress' push to halve student loan rates over the next five years would face a tough Senate fight to make Democrats' efforts veto-proof. It takes two-thirds of the Senate to override a presidential veto, but Democrats maintain a narrow 51-49 Senate majority.
The House passed the College Student Relief Act of 2007 on Jan. 17 with a convincing 356-71 bipartisan vote, sending the bill to the Senate for consideration as part of a larger student assistance package. The bill, which would halve the subsidized Stafford loan rate from a fixed 6.8 percent to 3.4 percent, is touted to save the government $5.9 billion in lender subsidies.
The bill would reduce only need-based rates for Stafford and Perkins loans and would not affect loans not subsidized by the government.
Rep. John Tanner, D-Union City, voted in favor of the bill.
"This student loan rate cut will be very helpful to Tennessee families who are struggling to afford the high cost of higher education, which has gone up almost 50 percent over the past several years," Tanner said. "Without this relief, millions of students over the coming years would choose not to go to college because of the financial obstacles, and that would be devastating."
U.S. Public Interest Research Group (PIRG) also supports the Democrats' plan.
"H.R. 5 pays for better benefits for students by cutting excessive federal subsidies to private lenders," U.S. PIRG Higher Education Advocate Luke Swarthout said in a release. "The bill saves millions of students thousands of dollars over the life of their loans by eliminating wasteful subsidies."
Contrasting the bill's praises are President Bush's words of opposition, and the alternate plan laid out in his budget proposal to only hike Pell grant ceilings.
"Reducing student loan interest rates would direct federal subsidies to college graduates, not to students and their families who are struggling to meet current and future educational expenses," Bush said in a Department of Education statement. "Instead, the (Bush) administration would support efforts to direct savings to additional grand support for low-income students."
And that's exactly what the president outlined in his 2008 budget request.
Bush's budget boasts a $550 increase to the maximum student Pell grant amount, raising the ceiling to $4,600. The president's proposed increase, if passed by Congress, would be the most significant increase in student grant funding in 30 years. The president hopes to increase the maximum to more than $5,000 by 2009.
Bush's Pell grant funding hike has been met with favor by the education lobby, because it goes beyond the increase passed by the House Jan. 31. The House approved its separate Pell grant increase by a 286-140 margin, but only called for a $260 boost. The Senate will also take on that legislation.
However, it's not the president's Pell grant assistance that worries the education lobby. Instead, it's the president's proposed cuts to the Supplemental Education Opportunity Grant and Perkins Loan Program that bothers higher education activists.
In Bush's plan, the government would cut student loan lenders subsidies by $13.5 billion over five years, in addition to other cuts to lenders. Additionally, his proposal would lower the proportion of student loans protected against default from 97 percent to 95 percent.
Swarthout said PIRG is not in favor of the president's proposal, saying his budget proposal "largely represents a rearrangement of federal spending rather than a new commitment to making college accessible for low income students."
Most affected by the cuts to government-subsidized student lenders are Sally Mae
(NYSE: SLM), Nelnet Inc.
(NYSE: NNI) and the Student Loan Corp.
(NYSE: STU).
All three companies traded lower in trading Monday, with Nelnet dropping almost 10 percent.
Both UTM Director of Admissions Judy Rayburn and Student Financial Assistance Director Sandra J. Neel were not available for comment on the pending legislation by press time Monday, and Assistant Director of Admissions Melanie Morris said she preferred not to comment, citing inadequate information on the subject.
2008 Woodie Awards