The House of Representatives unanimously passed a bill Oct. 7 to close a loophole that allowed companies that lend students money to profit from student loans.
The loophole in the Higher Education Act, which covers many federal student aid programs, allowed lenders to mix and match loans and collect 9.5 percent interest on them. Students see an interest rate of about 3.4 percent, and the government pays lenders the difference.
The government made payouts of $209 million in 2001, according to a report by the Government Accountability Office. So far this year, the government has paid more than $600 million.
The subsidies began in the 1990s as an incentive for private companies to lend money to students, according to the office report.
"[The House bill] shuts down the 9.5 percent interest rate. No new loan can carry this rate," said Alexa Marrerro, a spokeswoman for the House Committee on Education and the Workforce.
Rep. John Boehner (R-Ohio) proposed the bill, and Sen. Judd Gregg (R-N.H.) proposed a companion bill in the Senate. If it becomes law, it will stop taxpayer subsidies from being paid to loan companies.
However, students would not notice changes, according to David Bergeron, director of budget and policy in the Department of Education's Office of Postsecondary Education.
The House bill is set for President Bush's desk.
AU senior Jennifer LaForest said she was upset about the situation that the legislation would correct.
"I am outraged that my parents and I are working hard to pay for school, and these loan companies are abusing their position," she said.
If passed, the bill would also affect Federal Family Education Loans, which come from private lenders such as banks or credit unions. They differ from Direct Loans, which issue money directly from the federal government to a student's college.
About 50 groups distribute FEFL loans, and they were issued tax-exempt bonds before 1993. These bonds allowed them to distribute loan money and collect subsidies.
This bill would help teachers pay off their own student loans if they teach math, science or special education in schools in low-income areas.
"We are saving taxpayers' money," Bergeron said. "We wanted to take these savings and address the problem, so we enhanced teacher loan forgiveness."
While this program would help taxpayers and teachers, it could also hurt nonprofit student aid organizations. Democrats in the House have proposed retroactive cuts on the loans, meaning both existing and future loans would be affected.
"Some of the recipients ... are state agencies and non-profits like Iowa Student Loan, which run lean organizations to maximize the help they provide to students and parents struggling to pay for college," said Steve McCullough, president and CEO of Iowa Student Loan, in a statement. "A significant portion of the funding for these programs comes from 9.5 percent floor subsidies."
Marrero said she expected the bill to be signed into law within the next few days, and that its benefits would be immediate.
