Republican legislators claimed a victory Wednesday after the House of Representatives passed a bill that will reduce the budget of the federal government by about $40 billion.
About one-third of the budget slash will come from federal student loan programs, amounting to $12.7 billion worth of savings from raised interest rates, increased fees and closed loopholes for lenders.
The Deficit Reduction Act, which passed 216 to 214, will cut back on government programs and entitlements which Rep. Adam Putnam (R-FL) said “will consume 62 percent of the federal budget within the next decade if left unchecked.”
The bill will now head to President George W. Bush for final approval.
In North Carolina alone, about 139,000 students take out loans for college, according to the State Public Interest Research Group’s StudentAidAction.com. In 2005, the N.C. State Office of Scholarships and Financial Aid reported that 53 percent of graduating seniors — 1,239 students — claimed some amount of borrowing.
But despite the far-reaching impact of the bill, some experts said they are unsure of the effects the bill may truly have on students.
“Actually, students come out ahead in some ways on this,” Steve Brooks, director of the State Education Assistance Authority, said in an interview in early January.
Some of the benefits, he said, come from the increase in loan limits — from $2,625 to $3,500 for freshman and from $3,500 to $4,500 for sophomores.
For many student groups, the biggest downside to the bill is an increase in the interest rate to 6.8 percent, up 1.5 points from the current repayment rate. The new formula also changes the rate from variable to fixed.
Although the current variable rate fluctuates every year based on the market, it is capped at 8.25 percent.
But the changes were actually advocated by student groups in the late 1990s, a period when the rate hovered around its maximum.
The last five years have brought a “perfect storm of really low interest rates,” according to Brooks, and student groups have since changed their minds, now pushing for a new lowered cap of 6.8 percent and the retention of the variable rate.
Although Brooks said he has a sense that loan rates may soon begin to rise, Julie Mallette, director of the Office of Scholarships and Financial Aid, said the problem students have with the new plan is simple.
“It’s not a bargain in the current interest rate market,” she said in an interview in early January.
Much of the $12.7 billion in savings from the loan programs involves tightening some of the measures that attracted lenders to the student loan game in the first place.
In the current system, Mallette said, “lenders are making a profit, and the federal government is picking up the tab.”
Lenders who are paid back at a higher interest rate than what is guaranteed for example, will be forced to return the money to the federal government.
Another one of the ways the federal government plans to cut loan spending is to close a loophole that allows for-profit lenders to earn 9.5 percent from the federal government originally meant for nonprofits.
“A few players that were non-profit, in a sense, converted into for-profit and continued getting the rate,” Brooks said.
Although the changes still guarantee a similar profit for lenders than other conventional loans, the decrease in some of the lucrative profits may drive some companies out of the market.
The result, Mallette said, is that students will have fewer options for borrowing.
“Somebody pays,” Mallette said. “If it’s not going to be the federal government, it’s going to be the students.”
The cuts to student loan programs were a major issue of contention among representatives, who voted sharply down party lines. Only 13 Republicans broke rank to vote against the resolution.
One of these 13, Rep. Walter Jones, was the only North Carolina Republican to oppose the bill.
And according to Adam Compton, a sophomore in construction engineering management and an NCSU student senator, this can be partially attributed to the efforts of call-in campaigns organized by student governments across the UNC System.
Compton said the student body president of East Carolina got in touch with Jones in person during one call-in campaign, persuading the representative to change his vote to side with students.
It’s an experience Compton said he has rarely seen as a student advocate, especially in light of the continuously rising costs of tuition, fees and textbooks.
“It was that one victory that gives us the motivation to continue hounding the rest of them,” Compton said. “Even if it’s just when they go to bed at night, they think about how they screwed students over.”
He said the extremely close vote — now and when the Senate passed the bill 51 to 50 by Vice President Dick Cheney’s deciding vote late last year — was another indication of the 30,000 phone calls placed by students around the nation.
“It was good to see the results of what they did,” Compton said.
Bo Heath, a senior in communication and political science, said he has been watching the bill as it made its rounds through Congress.
An intern for the North Carolina General Assembly, Heath said he has actively opposed the bill by participating in the national call-in campaigns. He said he even wrote an e-mail to Vice President Cheney — although he has yet to receive a reply.
“There was such a massive response from the student population and [lawmakers] ignored it,” Heath said.
Heath also commented on the legislation in relation to President Bush’s State of the Union address Tuesday night, when he pledged a commitment to education, specifically in the math and science fields.
“If he wants to promote higher education, he should make it less expensive,” Heath said.
Student Senate President Forrest Hinton said he was “not shocked” at the passing of the act. A registered Republican, he pointed out that the budget deficit the bill was created to address can partially be attributed to the war in Iraq.
“We’ve pumped billions and billions of dollars into the country, whether for the war or for a school for Iraqi children,” Hinton said. “Whether or not you believe the war is a good thing, it still has negative effects.”