Magazine article Black Issues in Higher Education

Controversial Plan May Cut Student Loan Costs

Magazine article Black Issues in Higher Education

Controversial Plan May Cut Student Loan Costs

Article excerpt

Low- and middle-income college students could get a break on their student loans next year -- if Congress can defy the wishes of private lenders.

A little-known provision in a 1993 law may lower student-loan interest rates by a full percentage point beginning next July. The change involves what benchmark lenders use to determine interest rates. But banks and other financial institutions stand to lose about $9 billion if the measure takes effect, student leaders say. Most of these savings would pass through to borrowers.

"This change is something we're trying very hard to protect," said Erica Adelsheimer, legislative director for the United States Student Association (USSA). "In our view, banks have made a lot of money off student loans."

Representatives of the guaranteed loan system say the new rules could drive them out of the program, however, causing a disruption in loans to students.

"Under the change, you can expect to see a shrinking market for student loans," said Mark Cannon, executive director of the Coalition for Student Loan Reform, which represents those who administer the guaranteed loan system, called Federal Family Educational Loans, in which banks provide loan capital.

Cannon characterized the 1993 law as a way to undermine private lenders and create more business for the government-backed direct-loan program favored by the Clinton administration.

"Some will say the 1993 change was a diabolical scheme and a ticking time bomb under the guaranteed student loan program to favor direct lending," he said.

At issue is what economic measure lenders use to calculate student loan interest rates. The current system relies on ninety-one-day U.S. Treasury bills, while the new system will focus on ten-year U.S. Treasury notes.

Administrators of guaranteed loans agree the change will produce short-term gains for students. …

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