Political Sea Change Good for College Loan Rates

Dems Good For In-Debt Students?

When the Democrats gained a majority in the House and the Senate last month, many students, parents, and financiers hoped it would be good news for college loan rates. Now there seems to be confirmation, as reported on CNN yesterday, that the Democrats are indeed pledging to put education reform at the “top of their to-do list.” Specifically, Democrats wish to reduce the interest rates on need-based college loans by half. This would mean a reduction from the current rate of 6.8% to 3.4%, a significant difference. Even more promising is the timeframe this change might be expected:

“That will be done almost immediately, certainly within the first couple of weeks of the new session,” California Democratic Rep. George Miller, the incoming chairman of the House education committee, said in an interview.

Given that reforms of any kind undertaken by the government usually move at a snail’s pace, this really is progressive if it happens as they say.

Pell Grants and Public Lending Options
Democrats also wish to increase Pell grants, need-based grants which do not have to be paid back, by over $1000. This initiative would cost about $4 billion, and will happen incrementally over a couple of years. Another option, suggested by Massachusetts Senator Edward Kennedy, is to encourage students to seek student loans directly from the government rather than from banks that eventually get federal subsidies. This form of lending is ultimately cheaper for both the student and the government, but will likely receive friction from Republicans who want to ensure that banks stay in the profitable subsidized loan business.

“I’ll be as blunt as possible: You will never convince me — never — that the federal bureaucracy can do a better job than the private sector in managing the student loan program,” Republican Rep. Howard “Buck” McKeon, the outgoing chairman of the House education committee, said in a recent speech to bankers.

Despite these partisan differences, quite a few Democrats are supporting President Bush’s ‘No Child Left Behind’ plan. However, they have noted that a major issue is that the administration has under-funded the plan by over $5 billion dollars (compared to what Congress asked for). Therefore a goal in the new political climate is to support Bush’s education plan, but to increase the level of funding dramatically and reduce the reliance on standardized testing to dictate the curriculum in schools.

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