Deal may settle loan interest-rate talks

A proposal in the U.S. House of Representatives may serve as a compromise in the recent debate over student-loan rate reduction in the Higher Education Act.

The agreement was struck last week in the House Committee on Education and the Workforce by Rep. Howard McKeon (R-Calif.), who heads the subcommittee that oversees student-loan programs and Rep. Dale Kildee (D-Flint), the panel's ranking Democrat. It would lower interest rates for students to 6.8 percent while they are in school and raise them to 7.4 percent after graduation.

Thomas Butts, associate vice president for government relations, called this proposal "really good news for students." He said it could mean savings of $11 billion over the next five years.

"I believe people on both sides of the aisle are sincere when they say they want interest rates low for students," Butts said.

The central part of the debate has focused on how much profit guaranteed-loan lenders should receive. While the Clinton administration wants to require the lenders to accept these lowered rates, this agreement will allow them to collect at rates that are .4 percent higher.

The difference in funding will be provided by taxpayer money.

Butts said two-thirds of Michigan students with loans use direct loans, which lenders do not directly control. That means lenders that may pull out of loan programs will not have a great affect on University students.

Christopher Mansour, Kildee's chief of staff, said the agreement should give students the "full benefits of lowered interest rates," while trying to keep lenders satisfied as well.

"We had to find some kind of a compromise to make loans more affordable for students and profitable for banks," Mansour said.

Although lenders will receive subsidies from the government to offset some of their losses, some are still not satisfied with the profits they will receive under the proposed deal, Butts said.

"They'll still receive a reduction in the amount of income guaranteed from the government," Butts said.

Butts said the lack of a marketplace to decide loan rates has caused the political disputes over loan rates. Student loan rates, unlike other loans, have their rates set by Congress rather than a market.

"This is a political negotiating game about what the rate should be, and it has a long way to go," Butts said.

Some lenders say they may drop out of the market due to decreased profits from guaranteed loans. But Butts said students still will be able to find loans they need.

"There will be enough players left in the game to cover demand (for guaranteed loans)," Butts said. "It won't be much of a problem, but it depends on what lenders in Michigan decide to do."

Both Mansour and Butts said the major obstacle facing the funding proposal at this point is whether the House Budget Committee will agree to providing tax money to lenders.

"That is the question now," Mansour said. "There will be dollar questions on the floor" of the House.

Butts said the interest rate debate is far from over, but he said he is pleased with the current proposal.

03-17-98