Pombo, Congress cutting loans to college students

Congress narrowly passed a bill Wednesday that will cut $12.7 billion in federal student loans through higher interest rates and reductions in subsidies to banks that lend money to students.

The bill, which will take effect July 1, also boosts the amount of money college students can borrow. The provisions on student financial aid are part of the Deficit Reduction Act, which shaves $39 billion off federal programs such as Medicaid and Medicare.

"Instead of investing in higher education and the future of our country, Congress passed legislation that puts college even further out of reach for America's families," said critic Eddy Morales, president of the United States Student Association.

Republicans call the bill a win-win for students and taxpayers, rooting out unnecessary subsidies to lenders while increasing student access to loans. They say the measure is a step to curb the unsustainable growth in those federal programs.

Rep. Richard Pombo, R-Tracy, supported the bill, which was passed by a vote of 216-214.

"Tough decisions must be made, including updating some of our federal programs and reining in spending to ensure a strong economy," Pombo said. "The alternative is to raise taxes for every working American and pass along the heavy burden of a deficit to future generations."

The bill locks the interest rate at 6.8 percent for student borrowers, who now pay an adjustable rate that stands at 4.7 percent but could have climbed as high as 8.25 percent.

A college student in California borrows an average of $16,099 by the time of graduation. At the interest rate of 6.8 percent, the student has to pay $6,133 in interest over 10 years, $2,023 more than at an interest rate of 4.7 percent, said Earl Hadley, Education Coordinator for Campaign for America's Future, a Washington, D.C.-based progressive think tank.

Students can take out loans from banks subsidized by the government or directly from the government. The bill reduces assistance to these banks and also requires them to pay a 1 percent insurance fee, which is expected to be passed onto students.

Meanwhile, the bill enables students to borrow more money. The loans freshmen can take out will rise from $2,625 to $3,500 a year, and the number for sophomores will go up from $3,500 to $4,500. The amount allowed for juniors and seniors will remain the same at $5,500 a year.

About $3.75 billion of the projected savings will go to a new scholarship for students who study math, science and foreign languages. Yet critics say all the savings should be invested back into higher education.

According to the College Board, 47 percent of students take out federal loans. Nationwide, tuition and fees average $2,191 this year at two-year public colleges, $5,491 at four-year public colleges and $21,235 at four-year private universities.

Fees at California State University and University of California schools have risen three years in a row. At CSU institutions, undergraduate students pay $3,164 a year for a full course load and graduate students pay $3,746. UC charges undergraduate students an average of $6,141 a year, graduate students $6,897 and those in professional programs $18,029.

Hadley said the name of the Deficit Reduction Act is misleading, because the savings from student loans and other federal programs will be too little to plug the deficit created by the $70 billion tax cuts Congress will soon vote on.

"That makes the whole thing utterly, morally wrong," he said.

Contact reporter Brenda Huang at bhuang@tracypress.com.