As graduating students at UCLA and colleges across the country
get ready to receive their diplomas, many of them fear the
unavoidable next stage of their lives.
Repaying student loans.
And new legislation in the federal government aimed at
overhauling the student loan program may do little to ease those
fears.
The College Access & Opportunity Act, introduced last month
by Rep. John Boehner, R-Ohio, chairman of the House Committee on
Education and the Workforce, and Rep. Howard “Buck”
McKeon, R-Calif., would change the type of interest rate charged to
borrowers from a fixed to a variable rate, potentially costing
students more money as they repay their loans.
The bill is one step toward the reauthorization of the Higher
Education Act currently under way.
Currently, students who have taken out a fixed rate
consolidation loan from the government and begin repaying within
six months of graduation will incur an interest rate of about 2.8
percent, an all-time low. Students who do not begin until after six
months pay the prevailing rate of 3.5 percent.
Students who are locked into this rate will continue to pay it,
and as interest rates rise, the government pays the difference
through subsidization. Variable rate loans fluctuate according to
the prevailing rate.
If rates should rise, under the fixed-rate structure, students
graduating in the coming years will be locked into higher rates
than students who begin repaying their loans today.
Alexa Marrero, a spokeswoman for the House Committee on
Education and the Workforce, said variable rates are better for
students overall, because when rates rise, graduating students will
not remain locked into those high rates.
“Part of the concern with the fixed rate is that it has
the potential to be very costly,” she said.
University of California officials are currently studying the
bill to determine its effects on students, said Hanan Eisenman, a
spokesman for UC Office of the President. The UC has not taken an
official stance on the bill.
The independent Congressional Research Service released a report
last month showing that from 1986 to 2003, students would have paid
less under a variable rate structure than a fixed rate in 13 of
those 18 years.
For this reason, Marrero said, the current low rate can be
misleading and in the long run, students will pay more with a fixed
rate.
But critics of the change, like Rep. George Miller, D-Calif.,
contend that since interest rates are expected to rise to over 6
percent in the coming years, changing to a variable rate could cost
students thousands of dollars.
“Mr. Miller doesn’t support anything that would make
college more expensive for students,” said Tom Kiley, a
spokesman for Miller.
To make sure students will not suffer extremely high interest
rates under a variable rate structure, the bill proposes to
maintain a cap at 8.25 percent.
“It would ensure that everyone has access to rates when
they are low, but protection from rates that rise too high through
an interest rate cap,” Marrero said.
Eisenman said the UC favors a reduced cap of 6.8 percent.
The General Accounting Office, the investigative wing of
Congress, recently released the results of its study that looked at
the effects on the government of the recent drop in interest
rates.
The study determined that a surge in loan borrowers resulting
from the drop in interest rates could potentially cost the
government billions of dollars in the near future. Consequently,
the GAO recommended changing to variable interest rates for
consolidation loans.
During the opening statements of the congressional hearing for
this bill, Rep. Boehner emphasized the financial benefits for the
government.
“Bipartisan experts have told this committee that
following GAO’s recommendation would free up approximately
$21 billion over the next seven years,” he said.
Opponents of the bill have accused the lawmakers of focusing too
much on the benefits for the government and neglecting the needs of
students.