Thursday, February 02, 2006

Congress Raises Student Loan Rates On Stafford and PLUS Loans, Screws Working and Middle Class Americans

Proving that lawmakers in Washington just can't help themselves when faced with a decision between screwing middle and working class Americans or paying off a well-financed special interest elite like the banking industry, the Congress increased student loan interest rate hikes in yesterday's spending bill. The NY Times has the details:

With the narrow passage of the spending bill by Congress yesterday, students and their parents will be able to borrow more money to pay for higher education but will face higher interest rates on these federal loans beginning in July.

Some critics have argued that the higher interest rates are, in effect, a cut in student aid. But the legislation also potentially generates nearly $14 billion in revenue over five years by capturing what has at times been a windfall to lenders: the difference between the interest rates paid by students and rates paid by lenders.

Before, lenders could keep profits generated when rates they had to pay were lower than those paid by borrowers; now, that spread will have to be paid to the government. (The government will still pay lenders when the rates they pay are higher than borrower rates.)

The bill increases the rate on loans taken out by parents, known as PLUS loans. It had been scheduled to rise to 7.9 percent from the current 6.1 percent on July 1; it will now increase to 8.5 percent as of that date.

Under current law, the interest rate on federal Stafford loans, taken out by students, will rise to 6.8 percent from 5.3 percent.

"With this bill we were able to reduce spending through changes in the way lenders operate, but at the same time we shielded the direct impact to students and actually increased student opportunities," Senator Michael B. Enzi, a Wyoming Republican who is chairman of the Committee on Health, Education, Labor and Pensions, said in a statement on Dec. 19, after the bill passed the Senate.

Representative George Miller, Democrat of California, condemned the bill as too harsh on families. Republicans, Mr. Miller said in a statement yesterday, "obviously don't understand the kinds of sacrifices that families have to make so their children can go to college."


The increased rates and the windfall provision produce almost one-third of the overall savings in the budget bill. But the changes have led some advocacy groups, which had hoped to have the windfall money somehow returned to students, to describe the new system as a hidden tax on student borrowers.

"This bill turns to students and families as the predominant source of revenue, rather than trying to identify inefficiencies in the loan programs," said Luke Swarthout, higher education associate for the State Public Interest Research Groups, a nonprofit consumer organization that opposed the law. "This bill asks students and parents to pay for tax cuts."

Nearly 10 million students take out Stafford loans annually and about 800,000 parents take out PLUS loans, according to the Department of Education. The law raises the maximum amount that students can borrow through the Stafford program, putting more costly educational opportunities within reach, but also deepening the potential hole students may find themselves in after graduation. It also makes some existing types of loans available to graduate and professional students.

The fixed higher interest rates could prove to be good news for students and their families if market interest rates rise, provided that Congress does not raise the rate again in the future.

Couple of things here:

Let us first note the reason why the Congress passed this $35 billion dollar spending cuts bill yesterday was so they could make $70 billion dollars of George Bush's capital gains tax cuts permanent.

Note too that 1/3 of the savings in the bill was funded by the student loan rate increases.

Also note that the GOP sells these fixed rate increases (6.8% on Staffords, 8.5% on PLUS loans for parents) as good things. They say "Hey, sure students won't be able to lower their rates on student loans below 6.8% by consolidating later on, but the rates won't go any higher either...unless we make them higher later on."

Finally let us note that any Congressmen who voted for this bill (or any Senators who voted for the Senate version of it before Christmas) need to have these student loan rate increases hung around their necks come reelection time.

If any Republican or Democrat wants to claim he or she was being fiscally prudent by passing these loan increases as part of a $35 billion dollar spending cut bill that also eliminates some money from Medicaid in order to make $70 billion in capital gains tax cuts permanent (and thus still adding $35 billion dollars more to the federal deficit), they should be forced to defend these cuts over and over again.

Hit them with these kind of commercials:

Representative ______ thinks making middle class and working class college students and parents of college students should subsidize capital gains tax cuts for rich people. _________ also believes adding 35 billion dollars to the federal deficit so that the top 1% of the nation can take home more money every year is "fiscally prudent".

We here in the great state of ________ , however, think sending Representative ________ packing is the most " prudent" thing to do. If _________ thinks working and middle class people are here on this earth to fund tax cuts for rich people, then he/she doesn't deserve to represent us in the Congress/Senate.

Over and over again.

Both Democrats and Republicans.

Whoever voted for this abomination of a spending bill that screws ordinary Americans and gives away the store to the banking industry should be made to pay politically.

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