Student financial aid legislation

This page focuses on action taken in the U.S. Congress with regards to college students and the financial aid they receive. Upon taking control of the 110th Congress in January 2007, Democrats promised to address the issue of financial aid. In its first 100 hours of legislative business, the House passed a bill amending the Higher Education Act of 1965 to reduce interest rates for student borrowers. Other bills were also considered later in the session.

House
The College Cost Reduction Act of 2007 (H.R.2669), sponsored by House Committee on Education and Labor Chair George Miller (D-Calif.), was introduced on June 12, 2007. It passed in the House on July 11, 2007.

The bill seeks to seeks to lower the cost of higher education by reducing lender subsidies by $19 billion and then investing those funds in programs that increase grant amounts to students, improve access to student loans, cut interest rates on student loans, provide for the repayment of parts of the loans through employment or service in areas of national need, and reward colleges for lowering costs to students.

House
On January 17, 2007, the House passed a bill amending the Higher Education Act of 1965 to reduce interest rates on certain federal loans. The final vote was 356-71.



Specifically, the bill gradually decreases the rate on subsidized federal loans until 2011, when it hits a temporary low of 3.4 percent for a six-month period. Once that period is up, the rate will revert to 6.8 percent unless future legislation dictates otherwise. “Subsidized” loans are those for which the federal government pays the interest until the student leaves school. The bill would raise fees on and cut profit margins for student lenders to offset the proposed cut. An estimate by the Congressional Budget Office (CBO) stated that the rate cut would cost $8.1 billion over a five year period. Increased loan fees would raise $2.7 billion and reducing guaranteed lender profit margins would raise another $2.5 billion over the same period, according to CBO. The remainder of the cost would be raised by reducing lender guarantees and retaining certain guaranty agency collections.

The bill’s sponsor, House Committee on Education and Labor Chairman George Miller (D-Calif.), stated, “For students who use the subsidized program, the interest rate cut is a big deal...It's an important part of the (equation).” He also said, however, that the effort was merely one step of many he hoped to see to address the increasing financial burden of attending college. He voiced his supported for an increase in Federal Pell Grants, as well as an examination of university efforts to control tuition increases. Robert Shireman, executive director of the Project on Student Debt, applauded the rate cut, but said he would also like to see the following changes:


 * A change in the repayment system so that a student's loan payments are tied to a percentage of his or her income.
 * Forgiveness of a student's remaining debts after 20 years of regular payments.

Rep. Buck McKeon (R-Calif.), a member of the Education and Labor Committee, opposed the measure. He stated, “All this does is help those who have already finished their education...It basically gives them a bonus for graduating.”

U.S. PIRG, the federation of nonprofit state Public Interest Research Groups, has estimated that the bill would save the average four-year college student starting school in 2007 with subsidized Stafford loans about $2,280 over the life of his or her loans.

Bush administration response
The White House announced that it opposed the measure. In a statement, it said, “Student debt loads have soared in recent years, and it is not clear that encouraging more loans is a wise course." The statement did not make a veto threat.

Senate
On January 4, 2007, Senate Majority Whip Dick Durbin (D-Ill.) introduced a Senate version of the bill (S.1642), which is co-sponsored by Sen. Ted Kennedy (D-Mass.). Kennedy, however, announced plans to support a broader education bill which would halve interest rates on more than just Stafford loans, raise the Pell Grant limit to $5,100, cap federal student loan payments at 15 percent of a borrower's discretionary income, forgive the debt for those who stay in public service careers, and encourage schools to use the government's Direct Loan Program. 

On June 20, 2007, the Senate Committee on Health, Education, Labor and Pensions moved two bills that would increase financial aid opportunities for students, cut subsidies to lenders, and more strictly regulate lenders. These efforts followed revelations in mid-2007, when the $85 billion student loan industry came under heightened scrutiny regarding substantial conflicts of interest among lenders, universities and university officials, and government regulators and regulatory agencies. The Senate legislation called for a slightly smalled subsidy reduction than the House bill (H.R.2669), a greater increase in federally backed Pell grants, and lacked the interest rate cut, to 3.4 percent that existed in the House version. Both bills would also work to increase competition among lenders.



House
On May 9, 2007, the House considered a bill (H.R.890), sponsored by Rep. George Miller (D-Calif.), which would bar student loan companies from offering perks and financial incentives to universities to increase business. The industry had come under scrutiny from federal and state investigators over its financial ties with schools and government officials. Specifically, gifts to school employees would be prohibited. Schools would be required to report to students when the loan they have purchased exceeds the expected expense of their education and must provide the borrowers with preferred lending lists that they may or may not use. The Secretary of Education would be required to produce a report within 180 days on the adequacy of the information provided to students and parents after consulting with students, schools and lenders. The report would include the provision of information on applicable interest rates, terms and other provisions of the loans, annual percentage rate, average amount borrowed and previous year rates.

During the debate on the bill, Miller stated, "This legislation would protect students and families from the corrupt practices and abuses that for too long have been allowed to run rampant within the student loan industry."



The bill passed, 414-3. The Bush administration said it was "generally supportive" of the bill.



Bill to forgive student loans for state and federal prosecutors and defenders
On May 15, 2007, the House passed the John R. Justice Prosecutors and Defenders Act of 2007 (H.R.916) which would encourage law school graduates to take government jobs. The bill would provide $10,000 per year and a maximum of $60,000 for law school graduates who commit to three years of public service as a state or local prosecutor, or as a federal, state, or local public defender. Federal prosecutors were previously made eligible for such a loan forgiveness program.



External resources

 * TheWeekInCongress
 * House Committee on Education and Labor
 * THOMAS page on the bill, H.R. 5
 * 110th Congress/Democratic Party agenda
 * 110th Congress

External articles

 * John Godfrey, “Bush opposes Democrats' student-loan rate cut,” ‘’Market Watch,’’ January 16, 2007.
 * Carrie Sturrock, "Student loan interest rate cut set for vote in House today," San Francisco Chronicle, January 17, 2007.
 * Paul Kane, "House Votes to Reduce Rates on Student Loans," Washington Post, January 18, 2007.