Groups to fight proposed cuts in student loans

WASHINGTON – The fight is about to begin as hundreds of education, student and social service organizations plan to battle Congress over proposals that could add up to the largest student loan cuts in history.

The House last week narrowly passed a measure to reduce the deficit that included $14.3 billion in student loan cuts. The Senate version proposed approximately $9 billion in cuts.

The U.S. Student Association and congressional Democrats contend the cuts would force the average student borrower to pay as much as $5,800 extra in loan repayment over the course of a college education. On average, students borrow about $17,500 for education.

“These members have to go back and face parents and students in their district, and they are going to have to explain their votes,” said Jasmine Harris, the association’s legislative director. “These bills are unpopular, and you have a wide range of groups, from the NAACP to women’s groups to poverty groups, working on this.”

Republicans counter that the critics have distorted the measures, maintaining that although there might be some initial costs, the plan would ultimately help students by raising the limits on what freshmen and sophomores can borrow, and by eventually reducing the overall costs of the loans.

“First and foremost, people who say that this cuts student aid are just wrong,” said Alexa Marrero, spokeswoman for Rep. John Boehner, R-Ohio, chairman of the House Education and the Workforce Committee. “What that implies is there will be less aid available, and that’s not the case. We are trying to get more bang for the buck.”

Right now, students pay as much as a 3 percent loan origination fee and an additional – but optional – 1 percent loan default or insurance fee. Under the GOP plan the origination fee would be phased out, but the insurance fee would be mandatory. Democrats say that is not really a savings because most guaranteed lenders discount or waive the origination fee, so the fees for the direct loans from the government will increase before they decrease.

Advocacy groups plan to bring the issue home to lawmakers who are in close races next year. Harris said that students have made about 25,000 contacts with legislators by phone, e-mail or traditional mail, protesting the cuts. “We think we can defeat the bill,” she said.

Complicating the fight for advocacy groups is that most of the cuts would come from reductions in government subsidies to private lending institutions. Student groups advocated for those cuts for years, but they had hoped the savings would be given back to students to keep loan costs down. The Senate bill does recycle some of the money back into the students loans, while the $14.3 billion in House cuts are largely for deficit reduction.

“This comes at a time when students are already deeply in debt,” said Rep. George Miller, Calif., ranking Democrat on the House education panel, who has fought the plan. Miller points to a Congressional Budget Office report that the House bill would saddle students with an additional $7.8 billion in new loan charges.

One point of contention is the House version’s proposed change in the student loan consolidation program, which allows students to roll together various loans taken out over the course of their education. Under current law, borrowers can consolidate loans with a fixed interest rate for as many as 30 years, but the government bears the burden of paying the difference between the locked rate and the market rate.

The House version offers students the option of choosing between a variable rate – with a cap of 8.25 percent – and a fixed rate, but those choosing the fixed rate would pay a percentage point higher than the market rate. Students also would pay a new 1 percent fee to consolidate. The GOP’s Marrero said that a variable plan with a cap could protect students if interest rates soar in the future.