Chet Edwards For Congress

November 6, 2005
Edwards: Raising The Cost Of Student Loans Unwise
Special to the Eagle

Bryan-College Station Eagle
By REP. CHET EDWARDS | Op-Ed

I am deeply disappointed that the U.S. House leadership pushed through the Budget Committee on Thursday partisan legislation that could add $5,000 to $28,000 to the cost of college student loans. This legislation, contained in the 2006 Budget Reconciliation bill, could be on the House floor for a vote as early as this week.

Unless we can stop the higher interest rates and new origination fees in this bill, they, in effect, will amount to an expensive new student tax. This student tax would place a tremendous burden on thousands of college and university students in our district who have taken out loans to pay for their college educations.

With costs for gasoline, utility bills and higher education already rising rapidly, the new student tax could force some students to take on a second or third job, and for others it might mean dropping out of college. For high-achieving middle- and low-income high school students, it might mean many of them have to give up their dream of a college education.

By significantly increasing the interest payments on college loans, this bill might force future teachers into taking higher-paying jobs instead of pursuing their calling to teach.

As our nation faces both increasing foreign competition and the largest trade deficits in history, there could not be a worse time for Congress to increase the cost of college loans. Doing so would be unfair to students and a prescription for long-term economic stagnation.

Budget estimates are that this bill would reduce federal funding for college student loans by $14 billion over the next five years; $7.8 billion of that would be direct cost increases to students, and $6 billion would be from cutting subsidies and increasing fees to lenders. It is, in reality, a $7.8 billion tax on students and families with outstanding student loans. If half of the cost increase to lenders are also passed on to students, it would be a $10.8 billion tax on students.

How does this bill raise costs to students and families? First, it would mandate a new 1 percent origination fee on consolidated student loans. Second, there would be a new 1 percent increase in the interest rate for borrowers who want to consolidate their student loans at a fixed rate. Third, borrowers who are still in school would no longer be able to lock into their present low loan rates. Finally, the bill raises fees on new student loans as well as raising the cap on the interest rates that students and parents pay. With subsidies to banks and other lenders also cut by $6 billion, the bill will most likely reduce the private capital available to students for college loans.

According to Dr. Charles Young, president emeritus of UCLA, the present 5.3 percent rate for consolidating federally insured student loans would increase to 7.18 percent. That is a 35 percent increase in the loan rate.

When stretched out over 20 years on a $20,000 loan, the new student tax would total an extra $5,255. For a $40,000 loan over 25 years, the student tax would add $13,932 to total loan repayments.

These increases assume that interest rates on 91-day T-bills do not go up. If, for example, those T-bill rates went up 0.75 percent between now and May 31, 2006, a student borrower could be forced to pay $19,709 more on a 25-year, $40,000 student loan.

College students and their families have a right to be outraged that the new student tax could be passed into law by Congress with very little input from those who will be hit the hardest.

The House leadership is no doubt hoping this bill will pass before college students and their families even know about it.

To add insult to injury, the Republican House leadership has chosen to cut $14 billion from student financial aid programs over the next five years in order to pay for an extension of its dividend cuts that gives a $220,000 annual tax break to those making $1 million a year in dividend income.

I believe the House leadership is out of touch with the values and priorities of American families, Democrats, Republicans and independents alike. If Congress would ask those making a million dollars a year in dividend income to give up just a part of their $220,000 annual tax cut, it wouldn't be necessary to pass a $14 billion student tax that will hurt high achieving students and harm our nation's future competitiveness.

The $14 billion student tax is a bad idea and should be defeated. I hope the voices of college students and their families will be heard in Congress before it is too late.