Act requires students to pay more

Students take notice: Tuition is not the only higher education cost that will rise in the coming years. Congress is currently debating an act which would result in students paying thousands of dollars more in interest on federal student loans.

When first issued, student loans are usually issued at a variable rate. But when consolidating, students currently are allowed to consolidate their loans at a fixed rate. President Bush has recommended Congress adopt a plan that would require students to consolidate at variable interest rates.

Recent interest rates are at an all-time low, and more people have been rushing to consolidate their loans as a result. When an individual consolidates his or her loan at a low interest rate, the government pays a subsidy to lenders.

These subsidies to large companies such as Sallie Mae threaten to push the government further into deficit spending. As a result, the Bush administration and many Republicans in Congress have called for changes that require variable rates at consolidation. Unfortunately, such an act is just simply wrong.

If this proposed change were to be enacted by Congress, it is estimated that the average borrower of a $20,000 loan would pay an additional $7,807 over a 20-year period. The White House estimates this proposed change will save the federal government as much as $5.2 billion.

Unfortunately, the money the federal government saves will work to benefit the already profitable companies issuing student loans at the expense of middle class students attempting to work their way through college.

The proposal to change the way in which student loans are consolidated is nothing but the White House attempting to balance its budget. But, why is the Bush administration balancing the budget at the expense of students? Instead of helping middle-class and poor families fund their children through college, the administration has chosen to give back tax-cuts to the wealthiest 1 percent of Americans. Such a transfer is extremely inappropriate.

Most families depend on the aid of federal student loans to put their children through college. Most families are not privileged to pay for four years of tuition without assistance. When the time comes for families to pay back their federal loans, this act will result in much higher payments that will make more students struggle financially.

As students graduate from college, they are extremely uncertain about their financial future, especially in these currently difficult economic times. Graduates are searching for jobs, beginning to get settled and starting their families in the years after college. It is only fair to allow students to consolidate their loans at the lowest possible rate.

The proposal Congress is currently debating will trap college graduates into indebtedness and raise the cost of attending college. The changes will discourage poorer families from sending their children to college. There is something fundamentally flawed in the principle of transferring tax breaks to the wealthy and to large loan corporations while raising the cost of college for students.

Given the fact Congress has already voted for massive tax cuts for the wealthy, to help balance the budget some changes could be made to the federal student loan program. However, the changes that are made to the program should not directly impact students and graduates. If the government wants to save money on federal student loans, it should look at reducing the amount of the subsidy granted to large lending companies.

Burdening the borrowers even more is not the solution. Sixty-eight percent of graduates polled stated their outstanding loans are preventing them from buying a car or a house. Therefore, it only makes sense for the federal government to revise the subsidy to lenders, which is the true cause of growing federal expenditures.

Lending companies have been lobbying Congress extensively against any act that would remove the lender subsidy. Nonetheless, all evidence shows the lenders would make hefty profits even if the federal government did not subsidize them at a minimum interest rate. Since payments of student loans are practically guaranteed by the federal government, any subsidy paid to a lender simply amounts to billions of dollars more in corporate profits on top of the billions already made.

Banks and companies issuing federal loans face robust profits and almost no financial risk. By looking at the issue of student loan reform from this type of a perspective, the federal government will be able to save billions of dollars and students will be able to face affordable loans at the expense of excess profits for big companies.

The act currently before Congress demonstrates how big business can influence public policy. Clearly, preventing consolidation on fixed rates is harmful to people who greatly need federal assistance, while preventing fixed rate consolidation is only beneficial to large lenders.

One of the only ways for big business to be defeated on this issue is for students and graduates with federal loans to write to their congressmen and urge them to look more closely at the issue. Urge senators and representatives alike to abolish the subsidy to lenders, rather than hurting real people.

Higher education is becoming more important in this ever-changing world. Large financial barriers already prevent families from being able to send their children to college. In recent times, many families are sending a generation to college for the first time. But, many poor and working class families have been left behind. Preventing students from consolidating at the lowest possible rate will only force more individuals to be left behind or to be left with hefty debts.

President John F. Kennedy believed the financial status of a family should not determine what university a student attends, but rather only his or her qualifications should determine the school of choice. Education policy mandates that the federal government provides assistance to qualified individuals whom wish to pursue higher education. Education policy does not require the federal government to provide assistance to big-business lending companies.

Sources:

http://www.washingtonpost.com/wp-dyn/articles/A19476-2004Apr17.html

http://edworkforce.house.gov/democrats/releases/rel4904.html