Congress amends education bill to diminish student debt

Published: Monday, June 1, 1998

Monday, June 1, 1998

EDUCATION: Legislation lowers fixed interest rate, increases work-study program, Pell Grants

By Catherine Turner

Daily Bruin Contributor

Higher education may soon become more affordable for students.

New amendments to the Higher Education Bill promise that student debts at UCLA and throughout the nation will not be as expensive or accumulate as quickly as they have in the past.

In order to ensure students' ability to take out private loans through banks at a record low fixed interest rate, Congress amended the Higher Education Bill. The amendments, attached as a rider to a separate bill, were approved by Congress last week. The amendments now await President Clinton's signature.

Clinton has said that he will sign the bill.

Banks currently lend money to students at a fixed interest rate of 8.23 percent. The bill decreases interest rates to 7.43 percent, a rate too low for most banks to profit from loaning money to students.

In response to the decrease, which would have gone into effect July 1, the banks threatened to withdraw from the private student-lending program.

The amendments, written by Congressman Buck McKeon, R-Santa Clarita Valley, preserved the original decrease in interest rates, but added that the government will subsidize 0.5 percent of the decrease as an incentive for banks to continue to participate in the private lending program.

"The private industry can do it cheaper than the government can do it," McKeon said.

The amendments were written to create a bipartisan solution to the problems of student debt, which should not be revolved around politics, but the best interest of students, McKeon said.

"Everything I wanted to do was make things better for the student," said McKeon, who believes that a good balance of private loans and direct loans is the best way for students to finance their education if they need outside resources for money. Student loans comprise 60 percent of federal financial aid.

"We wanted to make it available so that any person growing up in this country who wants to get an education can," he added.

The bill, according to McKeon, has three main objectives. They are to make school more affordable, make the student aid delivery system simpler and concentrate on the quality of education.

Even with Congress' attempts to create a way for both students and banks to benefit from the future decrease of interest rates, some banks are still expected to withdraw from the private student loan program.

The problem with fewer banks participating in the private student loan program is not an obvious one.

"When banks leave, the major banks that stay in will cherry-pick schools that are making bigger loans," said McKeon, who also added that banks to do not profit from student loans under $7,000.

Larger loans usually go to students attending private schools, while the smaller loans are allotted to students attending public schools.

The decrease in student interest rates will primarily affect students who attend public schools, where the tuition is less and the banks will not profit as much as they would with larger loans.

Even though the bill has ominous implications for public schools, UCLA students and faculty alike feel that the good of the amendments outweigh the bad and are looking forward to a decrease in student loan interest rates.

UCLA students pay back their loans after graduating much faster than students do nationally. UCLA's good standing with banks puts students who need to borrow money at an advantage.

"Lenders are always willing to come to UCLA, knowing that students repay their loans at higher rates," said Edward Flores, a financial aid counselor and outreach coordinator for the UCLA Financial Aid Office.

Although students at UCLA are able to establish a good rapport with banks and are predicted not to have as much of a problem as other public schools to find banks willing to extend loans, the interest rate decrease is certain to help alleviate the financial burdens many students have upon graduating.

"Students need to learn to borrow only what they need," said Flores, expressing concern over the large number of students who also graduate with credit card debts and face years of repayment.

In response to student need, the UCs have attempted in the past to keep the fees low and affordable.

In 1997 the annual resident undergraduate fees were reduced by 5 percent, which the UC budget has planned to sustain for up to the year 2000.

This decrease in student fees was made despite an 8 percent increase in their proposed budget for the 1998-1999 school year.

But despite the future budget's attempts to keep student fees down, students still complain of the almost unmanageable expense of attending college.

"I'm glad that student interest rates are going down. College is too expensive anyway," said Antranig Balian, a first-year student at UCLA who is currently borrowing money through the private lending program.

The bill's objectives are not exclusive to decreasing interest rates. It also offers incentives and opportunities for students to obtain money which does not need to be repaid.

It encourages students to work and save by not penalizing them in the student financial aid eligibility process through increasing the income protection allowance. In addition, it increases the work-study program.

The bill also expands the Pell Grant program, increasing the maximum grant from $3,000 to $4,500 by the year 2003, and eventually, to $5,300 by 2004.

Supporters believe that the amendments were written to enhance the purpose of the original bill and make it easier for students to take advantage of the opportunities of getting a higher education, which will ultimately benefit not only the individual, but also the country.

"It works in the public interest to have loans reduced or forgiven because it benefits the society as a whole," Flores said. "There's lots of good work to be done out there and it can't be done if people don't have the tools to do it."