Student loan rate-cut bill draws fire, praise

Interest rates on student loans may be cut in half in the next five years, but Utah leaders are worried the deal may not be good for students in the long run.

The move is part of a bill pushed by Democrats in the U.S. House of Representative, which passed HB5 on Wednesday. The bill would slowly ratchet down the current 6.8 percent interest rate on Stafford subsidized loans to only 3.4 percent by 2012.

While the figures sound good, some Utah leaders are worried the drastic cut is political posturing that still leaves students uncertain of what will happen after the five-year mark has come and gone.

Former high school teacher Rep. Rob Bishop, R-Utah, said he was "disappointed in the bill," calling it a "missed opportunity to help current and future students."

"Unfortunately, this bill only helps those who have already left college, so it doesn't benefit current students or expand access as the Democrats said it would," Bishop said. "As the father of three college kids, I was hoping that maybe my own kids could get a break at school, but this legislation doesn't help them a bit." Students do not begin repaying Stafford loans until after they leave college.

According to the legislation, the 3.4 percent rate would only stay in effect for six months, and there are no guarantees where it might go from there, said David Feitz, director of the Utah Higher Education Assistance Authority.

"It's a hard thing. We favor the lowest possible interest rate for students, but we want it done responsibly," he said. "We think it's highly political and not based on sound rational thought on what's good for the student loan program."

For the average Utah student, who carries close to $15,000 in school loan debt after earning a bachelor's degree, the bill could save them up to $3,000 over the life of a 10-year loan. More likely, however, that number would be much smaller because of the slow downshift in the interest rate over the five-year span, Feitz added.

The House passed the bill 356 to 71, with all the Democrats and 125 Republicans voting for the bill. The item was one of the to-dos on the Democrats first 100 hour agenda.

"Today's bipartisan vote to cut the interest rate in half on federally subsidized student loans over the next five years will help make a college education more affordable and more accessible for our next generation of leaders and innovators," House Speaker Nancy Pelosi, D-Calif., said. "At a time when college tuition continues to skyrocket, this crucial legislation will help remove some of the barriers to a higher education."