By HEATHERLEE BROWN
The House Education and the Workforce Committee has agreed with the Clinton Administration’s Feb. 25 propsal to lower student loan rates.
Clinton’s proposed legislation would reduce interest rate for students while providing a competitive yield to lenders; however, the yield is still lower than past years and subsidized by taxpayers, said Julie Green, of the U.S. Department of Education, office of the Secretary.
This plan does produce significant savings for millions of student borrowers who have borrowed with a 7.8 percent interest rate on student loans. With the Clinton’s legislation the interest rate would be fixed at 7.0 percent, Green said.
The savings are actually tremendous in considering an undergraduate borrowing $12,000 would save $650 in interest in a standard 10-year repayment period. A graduate student who borrows $60,000 would save $3,200, said David Frank, director of Communications of the United States Department of Education.
However, lenders are not happy about this rate reduction for they will receive a reduction in profit. Some lenders have pressed Congress to repeal the formula change and have threatened to abandon the decades-old lending program if this new legislation goes into effect, according to a news release issued by the United States Department of Education.
The lenders interest of profit and the Clinton administration’s interest in lowering college loan financing have been in disagreement since the 1993 student loan law was passed, which takes effect July 1 of this year. This law is based on the 90 day treasury bill which fluctuates with interest. Changes to this bill have been in discussion for the past five years. With the recent accepted legislation by the House, the discussion is now passed to the Senate Education and the Workforce Committee, Green said.
“In response to some lenders’ scare tactics, the Education Department is taking steps to implement the broad authority granted by Congress to ensure continued accesss to FFEL loans,” said U.S. Secretar of Education Richard W. Riley in a news release. “We are committed to assuring that no student is denied the financial help they need to go to college.”
“As part of the effort to ensure uninterrupted access to college student loans, the U.S. Department of Education has began discussions with the Student Loan Marketing Association and Sallie Mae, and contacted all 36 agencies nation-wide about their capacity to fulfill their statutory obligation to issue loans if necessary, said Stephanie Babyak, of the U.S. Department of Education. They are required by law to serve as ‘lenders of last resort’.”
Sallie Mae, the largest student lender, was created by Congress. Guaranty Agencies are state agencies and private, non-profit corporations designated and subsidized by the Education Department to administer the federal gurarantee should the borrower default on the FFEL loan. Guaranty agencies use federal funds to reimburse banks when a borrower defaults, and the loan is then turned over to the guaranty agency for collection, Babyak said.
Riley said in a news release that he believes Sallie Mae and the guaranty agencies can ensure continued access to FFEL loans if necessary. Direct loans are an available option, as always, to schools that choose to make loans to students directly from the federal government instead of through private lenders.
“Direct loans have been a big push for the the Clinton administration. Through direct loans, schools borrow directly from the Treasury, eliminating the lenders,” said Norman Finlinson, director of Financial Aid for Brigham Young University. “However, if private lenders abandon the old-loan programs because of profit loss, the government is not ready to manage the high volume of loans that would be requested by direct loans through the Treasury. Maybe in a couple years, but right now they aren’t ready for the volumes.”
The White House is going to continue to fight for the students as the legislation goes to the Senate. At the same time, we continue to believe that students can be protected without taxpayers further subsidizing the record profits of lenders, Riley said in a news release.
“It will be interesting to see what happens with this legislation before the 1993 law takes effect in July,” Finlinson said.
