Debt refinancing policy debated in Washington

Federal lawmakers discussed student loan policies last week in a debate that has been generating significant controversy on Capitol Hill.

Republican leaders of the U.S. House of Representatives Committee on Education and the Workforce are in the process of considering legislation that would subject student borrowers to variable interest rates.

Under the current law, borrowers looking to consolidate and refinance their loans are able to "lock in" to fixed interest rates for up to 30 years.

The situation that exists now is a tug-of-war between the interests of government and students, according to Frank Claus, Penn's associate vice president of finance.

He explained that the government must make up the difference between the fixed rates that the students pay and the variable rates that the lenders demand.

This could potentially be very expensive for the government and subsequently, the taxpayers.

The plan has not yet been introduced formally, but Penn plans to monitor developments very closely, according to Director of Federal Relations Lloyd Horwich.

In 2002, President George W. Bush's administration was forced to withdraw a similar proposal shortly after introducing it. At the time, the policy faced complaints that it would prevent students from saving significant amounts of money by securing their loans at the low-interest rates.

"We haven't taken an official position," Horwich said, though he added that Penn has been aggressive in advocating for student aid in the past.

Claus said that he personally supports a "soundly managed program" that would attempt to strike a balance between the interests of the federal government and student borrowers.

Congressional Democrats have not taken kindly to the plan.

"This proposal will heap thousands of dollars in increased interest costs on the backs of students and recent college graduates," Rep. Dale Kildee (D-Mich.) said, according to The Chronicle of Higher Education.

"We want our students to get the best deals. ... Even so, we can't be blind to the impact on the federal government down the road."

The loan consolidation program, which currently allows borrowers to combine and refinance any federal loans provided by the Stafford program, is extremely popular among students from middle- and upper-middle-income families.

Going ahead with the proposal could be politically risky. Currently, the program is enjoying immense popularity due to the low interest rates.

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