Kansas State Student Confronts Bush on College Loans

President Bush, caught off guard Monday by a question about cuts in higher-education student-loan programs, said the reduction in costs would come at the expense of lending institutions, not students.

Representatives of higher-education associations disagreed moderately. Leaders of student groups took vehement exception.

During a question-and-answer session with students at Kansas State University, sophomore Tiffany Cooper asked, “Recently, $12.7 billion was cut from education, and I was just wondering, you know, how is that supposed to help our futures?”

“The education budget was cut?” Bush responded. “Say it again. What was cut? At the federal level?”

She repeated the question and clarified that she was referring to student loans.

“Actually,” Bush finally said, “I think what we did was reform the student-loan program.

“We’re not cutting money out of it. In other words, people aren’t going to be cut off the program. We’re just making sure it works better.”

Becky Timmons, director of government relations for the American Council on Education, said the president had it half-right. “When you take [$12.7 billion] out of the program, you can both hit the lenders and make students and parents pay a lot more when they repay their loans,” she said.

Student groups were unwilling to concede even that much. “The cuts will mostly come from charging higher interest rates to students and parents who are struggling with higher education costs,” said Jasmine L. Harris, legislative director of the U.S. Student Assn., a student lobbying organization.

Interest rates on the two main loan programs -- one for students, one for parents -- are written in law but subject to different interpretations.

Loans to students carry market-driven rates, now 4.7% while students are in school and 5.3% once they graduate. Under current law, both rates will go to 6.8% as of July; the lending institutions will get to keep, as profit, any difference between the 6.8% legislated rate and the market-driven rate.

Under a spending-cut bill that is one final House vote and a presidential signature away from enactment, the rate would also be 6.8%.

But unlike current law, the difference between the legislated rate for student loans and the market-driven rate would go to the government to reduce the deficit, instead of to the lending institutions as profit.

Bush apparently was alluding to this formula in his reference to ensuring that the system “works better.”

Interest rates on loans taken out by parents, now at 6.1%, would rise to 7.9% under current law and 8.5% under the spending-cut bill.

Student groups say any savings should be passed on to them as lower interest rates, not assigned to deficit reduction.

“Students and their parents will be paying their loans back at higher-than-market rates so that the government can pay for tax cuts for the very rich,” said Luke Swarthout of the State Public Interest Research Groups’ Higher Education Project.

“Students and their parents will be paying more,” said Robert Shireman, executive director of the Institute for College Access and Success at UC Berkeley. “Whether to blame the bill or a prior Congress is a matter of opinion.”