Bill threatens to raise loan interest rates

Congress is close to approving a bill that would increase the difficulty of paying off federal student loans relied upon by thousands of Penn students.

If the bill is passed, college students would pay higher interest rates on federal Stafford loans. In addition, many banks and lenders would receive smaller subsidies from the government.

There are between 7,500 and 8,000 Penn undergraduate and graduate students who receive Stafford loans and would be affected by the bill, according to Director of Student Financial Aid Bill Schilling.

Instead of the current variable interest rates, which can be as low as 4.7 percent annually, the rates would be fixed at 6.8 percent for students and 8.5 percent for parents.

Student aid accounts for nearly a third of the $40 billion that the bill is expected to save the government over the next five years if passed.

The bill was approved by the House of Representatives in December and passed by a vote of 51 to 50 in the Senate, with Vice President Dick Cheney breaking the tie. The bill will return to the House because of small changes that the Senate made before passing the bill.

The Bush Administration worked with Congressional Republicans on the final budget bill. Supporters argue that banks and lenders will bear virtually all of the student aid cuts. Many Democrats and college administrators -- including Schilling -- say that students and their families will be paying for a significant part of the $12.7 billion the government expects to save over five years from the student aid change.

"Overall, I think that we're not thrilled with this," Schilling said. "Obviously we'd like to see higher investment in higher education and aid programs."

He added, however, that the change would not be too burdensome for students on an individual basis.

"The impact on a particular student is not going to be so large that it's going to have an impact on their enrollment," Schilling said. "It's spread over enough students that I think that on an individual basis it's just not that huge of an impact."

Students could pay $2,000 more in interest over the 10-year life of a loan if they consolidate typical $20,000 Stafford loans, The Wall Street Journal reported.

College senior and Penn Democrats Political Outreach Director Dan DeRosa said that the bill shows that "the main priority of the Republican Congress is not to help students." DeRosa, who has a Stafford loan, added that he will be personally affected.

"It's going to make it harder for me to pay back my loans and pay for everything else when I get a job," DeRosa said.

However, Wharton senior and College Republicans chairman Cory Bray said he believes the bill is necessary.

"Keeping government spending under control is the duty of our congressional leaders," Bray said. "This is not a cut in student loans. It's an increase in interest rates to keep up with the market."

Bray added that the increase is not large enough to make a significant difference.

Spending crunch - Budget bill in Congress would increase interest rates on Stafford student loans to save $12.7 billion in five years - Rates would climb to 6.8 percent for students and 8.5 percent for parents - Officials say increase would be sufficiently spread out to limit impact on individual students

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