Congress Cuts Student Loans

ASHLEY MONFORT
Ka Leo Staff Writer
Ka Leo O Hawaii
University of Hawaii, Hololulu

University of Hawaii students can expect to pay higher interest rates on their student loans on top of a $300 fall semester tuition increase for full-time Hawaii student residents.

In an effort to balance the $40 billion federal deficit, Congress voted in December to make the biggest federal cut to student aid in history.

In a five-year period, the $13 billion cut from federal funding for student loans will force an increase in Stafford Loan interest rates to 6.8 percent starting July 1, 2006 and impose fixed rates, leaving students without the option to consolidate loans. The increase in interest rates would make up the difference of the budget cut and prevent a reduction in student aid funding.

Because the Senate passed the bill by only 51-50 in December, the House of Representatives holds the last chance to vote down the bill.

Tomorrow, the House of Representatives will vote on the “budget reconciliation” bill.

“That’s a great idea – why don’t we take money away from education, never mind the future of America,” University of Hawaii at Manoa senior Kaleo Agasalda said.

Hawaiimentor.org, a Web site that helps families in Hawaii apply for college loans, reports that 56 percent of University of Hawaii at Manoa undergraduates applied for financial aid, and 96 percent of those applicants get aid.

USA Funds, a non-profit corporation that works to help with post-secondary education financial preparedness, said on its Hawaii Web site that they guaranteed $90 million in new education loans in the last fiscal year. Of those loans, 18 percent were PLUS loans, 30 percent unsubsidized Stafford Loans, and 44 percent subsidized Stafford Loans.

Federal loans come in three types: the Perkins, Stafford, and PLUS or Parent Loan for Undergraduate Students. The Perkins Loan is dispersed at a fixed 5 percent interest. Stafford Loans are either subsidized, where the government pays interest while the student is in school, or unsubsidized, where interest is accrued during school. Currently, the Stafford Loan interest rate is 4.7 percent. The PLUS loan, currently at 6.8 percent interest, will become 8.5 percent on July 1, 2006.

Jamie Uyehara, director of the financial aid services office at UHM, knows about the increasing interest rates, but did not know the rise came from a Congressional cut. “I’m not too sure [how students will be affected], I think people are still going to borrow money… and with the tuition going up, they’ll still borrow,” she said. “There might have to be other means like scholarships.”

Many students are not even aware that a cut has been made to college loans. “It’s going to make it almost impossible to attend school,” said junior Kristy Wickey, who is majoring in apparel and fashion design. She just applied for about $2,000 to be covered by a PLUS loan upon finding out about the rising interest rates.

Across the country, State Public Interest Research Groups [sPIRGS] have organized to create StudentAidAction.com, a Web-based project promoting the “Stop the Raid on Student Aid” campaign. The program asks students to write to their legislators and urge them to fight the “budget reconciliation” bill before the House of Representatives. The Web site provides a link to see how each state’s representatives and senators voted in December as well an option to send your letter through the Internet.

Despite the higher interest rates, the bill includes an increase in the Stafford Loan lending limit for freshman from $2,625 to $3,500 and for sophomores from $3,500 to $4,500.

Many students feel that this bill is restricting the opportunity to pursue a higher education.

“I’m not too much of a political person,” said Chris Rodriguera, a communications major at UHM. “I think especially for students we’re considered to be the future. They should take us into a lot of consideration especially if they say they’re trying to help us.”

In the opinion of some students, obtaining grants and scholarships is easier said than done. Junior Darren Stroman has been receiving a Stafford Loan as he pursues a degree in art graphics and design.

“Well, I’d rather [pay for school] through a loan,” the Oregon native said. “I don’t think there’s enough programs within the school campus, at least, to empower students to get certain scholarships, to get grants…. If they do offer it I don’t know about it or am not aware of it.

“They’re cutting it from the wrong area,” senior Aja Reyes said. Reyes will be graduating with a degree in marine biology and has taken out a number of loans to help pay for school. “People are living longer. You’re going to need more doctors. You need everything else, more engineers. The last thing you want people to do is be discouraged from going to college because of money.”

The Bill at a Glance

The bill according to the Wall Street Journal and the Chronicle of Higher Education:

* Loans affected: All loans including Stafford and PLUS.

* How it will affect them: Stafford’s interest rate is at 4.7 percent. By July, it will be at 6.8 percent. PLUS has an interest rate of 6.8 percent. By July, it will be at 8.5 percent, but the new bill will make this loan available to graduate and professional students, not just parents of dependent undergraduates.

* Support for the bill is mostly Republican, while lobbyists and Democrats have said “the money should have been directed back into student aid and benefits for borrowers.”

* Hawaii Representatives Neil Abercrombie and Ed Case both voted ‘Nay’ to the bill along with Senators Daniel Inouye and Daniel Akaka. All are Democrats.

* Pros of Bill according to Republicans: The measure would benefit students by raising loan limits for freshmen and sophomores to $3,500 and $4,500 and for graduate students to $12,000 (including $7,000 in subsidized loans). Origination fees that students pay the lender to take out loans will reduce over five years.

* Cons: Slashes government’s financial support to private lenders, raises interest rates for students and parents and requires borrowers to pay a 1 percent fee to agencies that guarantee loans.

According to the Chronicle of Higher Education, currently, “borrowers can lock in fixed interest rates for up to 30 years without paying more for the privilege.” Because of this, billions of dollars have been saved by borrowers but it has been expensive for taxpayers.

Borrowers who refinance will be charged an interest rate of 6.8 percent and will not be allowed to consolidate loans while in college.

Joint consolidation for married couples will also not be allowed.