Clinton offers to reduce loan rates

An offer made by Wednesday by President Clinton to reduce interest rates on college student loans is good news to state officials and University students.

The reduction Clinton is touting will cut the interest rate on student loans from 7.8 to 7 percent, potentially saving each public university or college student who takes out a loan $650 a year.

Because all 11,680 University students who currently receive loans will owe less money to the federal government if the offer is successful, some University and state officials are calling this a step in the right direction for higher education.

"I am pleased to announce that we are proposing improvements in the student loan program that will lower the cost of college for millions of students and their families while preserving their access to the loans they need," Vice-President Al Gore announced at a press conference Wednesday.

Although the reductions had been scheduled to go into effect on July 1, many lenders worried about the losses in profits that would result from an interest rate reduction, said Thomas Butts, associate vice president for government relations.

"The problem is the bankers and lenders in the guaranteed (loan) programs don't like losing money," Butts said. "They want our students to pay more to subsidize their profits through the loan industry."

Butts said there are two types of student loans - direct and guaranteed. Lenders fund the guaranteed loan program, while the federal government puts up the money for the direct loans. Since the lenders have been so successful, they have started to corner the market on student loans, Butts said.

"They've been making so much money that they've been offering discounts to discourage universities from participating in direct loans," Butts said. "The bankers will still make a modest profit. Our problem is that they're trying to drag our students into the problem, and we have been objecting vigorously to that."

Now that Clinton and the U.S. Treasury Department have ironed out many of the objections the lenders have expressed, University students will come out as the beneficiaries, Parker said.

"When you take a student attending a four-year public college saving $650 and a private school student saving $850, it has a very positive impact," said Jackie Parker, an education policy advisor to U.S. Sen. Carl Levin (D-Mich.).

State Rep. Liz Brater (D-Ann Arbor) said that reducing interest rates on loans is one of the many steps needed to improve the overall quality of education.

"Every little bit helps," Brater said. "It won't make or break you, but if you put it together with many other initiatives, it adds up to make education more affordable."

University students already borrow a total of $89.7 million each year to fund their education and pay back interest on their loans after graduation.

LSA first-year student As'ad Tarsin said most students don't consider interest rates when signing a loan, but this interest rate reduction is a bonus for students.

"When I get a loan, I don't think about the interest rate," Tarsin said. "In the end I'll pay less, but it's not something that affects me now. I guess it's kind of a bonus. When the loan is in front of you, I try to sign it and get what I can."

02-27-98