Senate passes loan rate reduction

Clinton expected to sign student-friendly bill

Students stretching their dollars to pay for their education will have a little more breathing space this week, assuming President Clinton signs the reauthorization of the Higher Education Act.

The U.S. House of Representatives and the Senate passed the provisions by overwhelming majorities Monday and yesterday, respectively, just in time to beat the Oct. 1 deadline imposed by the current Higher Education Act.

The act includes a provision that will reduce the interest rate students pay on guaranteed loans from 8.23 percent to 7.43 percent. Students with direct loans, the University's preferred loan program, also will pay the reduced rate.

Rep. Dale Kildee (D-Flint), the ranking Democrat on the House Education and the Workforce Committee, said he is pleased with the legislation Congress approved and said it now will allow the industry to hit the ground running when the old legislation expires.

"We put together a good, bi-partisan bill," Kildee said. "This was an example of us getting something done."

Associate Vice President for University Relations Tom Butts, the University's Washington, D.C. lobbyist, said this change will impact universities that use guaranteed loans far more than it will the University, but it is a step in the right direction.

Congress did not alter the previously approved, lowered direct loan interest rate, Butts said, and a provision allowing the consolidation of loans also will help University students.

"We're delighted they didn't take away the rate approved for July 1," Butts said. "Also, students can now consolidate loans at the new lower rate."

Students with loans at the higher interest rates from previous years will be able to consolidate those loans at the new rate, which is based on the interest on a treasury bill plus 2.3 percent.

But that opportunity will end on Jan. 31, a provision Butts said he is not happy about.

"The only reason for that is the loan industry didn't like" the consolidation option, Butts said.

In addition to the interest rate decrease, Congress approved an increase in the maximum funding limit of Pell Grants, which the government provides to economically disadvantaged students.

The current $2,800 cap gradually will be increased until 2003, when it will reach its new maximum of $5800.

This will help students who need more than just one type of loan to finance their education, Kildee said.

"Often times students need to package loans, Pell Grants and other sources to pay for school," Kildee said.

One major point of debate for the committee when it discussed the act last spring was how to keep banks, the providers of guaranteed loans, in the program even though their revenues would be cut.

The solution is a government-funded subsidy that will allow banks to collect the same interest rate per loan, but now the student will pay less and the government will pick up the difference.

"You can't have borrowers if you don't have lenders," Kildee said. "The banks always wanted more, but we gave them what we felt would allow them to stay in the program."

If banks were unable to handle the new restrictions, the government-funded Direct Loan program would have become the primary source of loans for students.

Kildee said he was always considering a subsidy, because he knew it would be necessary to keep banks interested.

"The Direct Loan program would not be geared up enough to handle the whole program," Kildee said.

Butts said he will now work with the Department of Education and the University's Office of Financial Aid to inform students and alumni about the new lower loan rate.

09-30-98