In three weeks, the U.S. House of Representatives will vote on whether to slash $12.7 billion from federal student loan programs in a bill that would increase loan interest rates and “origination fees” and limit loan consolidation.
The federal government’s new budget reconciliation package will generate revenue by cutting nearly $40 billion in spending on social programs over the next five years in an effort to decrease the $319 billion federal deficit. To stimulate economic growth, $70 billion dollars in taxes will also be cut.
Beginning July 1, interest rates on Parent Loans for Undergraduate Students, or PLUS loans, will increase from 6.10 percent to 8.5 percent if the new bill passes in the House. Interest rates on general loans will increase to 6.5 to 7 percent in July, up from 4.7 percent currently.
The current federal law allows students to consolidate their loans and to lock in rates below 4 percent, but the new bill will eliminate this option.
Other changes to the student loan program include extending borrowing amounts for students in their first and second years and extending the forgiveness payback time on loans for students qualified to teach math, science or special education.
The government will also slash subsidies to private lenders and double the 1.5 percent “origination fee” required for students getting Direct Loans until 2010, when it will settle at 1 percent.
Vice President Dick Cheney approved the Senate’s version of the bill with his tie-breaking vote, so now it will go back to the House.
The original Senate bill proposed cutting $8.8 billion in student aid programs, but the original House bill aimed to cut $14.3 billion. The House will re-vote because of the $1.6 billion decrease in cuts made by the Senate. The president’s signature is needed to seal the federal government’s Budget Reconciliation Package.
The House is expected to approve the final version of the bill on Jan. 31 or Feb. 1. It passed an earlier version 212-206 on Dec. 19.
Both Oregon Senators, Republican Gordon Smith and Democrat Ron Wyden, voted against the Senate version of the bill.
President Bush said during a recent speech in Chicago that the deficit is increasing because of programs growing faster than inflation, the population and the economy.
“The bigger challenge to this budget is the long-term deficits driven by mandatory spending, or what they call ‘entitlements.’ And these entitlements include Social Security and Medicare, both of which are growing faster than our ability to pay for them,” Bush said.
The new bill would cut Medicaid by $4.8 billion and Medicare by more than $6 billion over the next five years.
“It’s unsustainable growth because a lot of people like me are getting ready to retire,” Bush said.
Bush did not mention federal student loans as one of these deficit-contributing programs. The federal student loan program accounts for about a third of the total cuts.
Rep. Peter Defazio, D-Ore., said in a speech on Nov. 2 that the proposed tax cuts will increase the debt, not decrease it. According to documents from Defazio’s spokeswoman, the cuts will affect only people making $300,000 or more.
“Now they want to cut. What do they want to cut? Students loans, Medicare, Medicaid, foster care and other programs that are important to struggling American families, under the guise of fiscal responsibility,” Defazio said.
Kristie Greco, Defazio’s Washington, D.C. spokeswoman, said the Oregon representative doesn’t think it’s fair to balance the budget
“on the backs of working Americans and students” who are trying to get ahead.
According to the Congressional Budget Office, the deficit has decreased by $94 billion since last year. President Bush is working to cut the deficit in half by 2009.
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