Gradual rate cuts trim cost of House student loan bill

Democrats, trying to deliver on expensive campaign promises, are offering a slimmer version of legislation to cut interest rates on student loans.

The House today is expected to approve the College Student Relief Act of 2007, with some Republican votes, which would cut interest rates gradually on need-based federal loans for college undergraduates from 6.8 percent to 3.4 percent by 2011.

It ultimately would save the average student borrower about $4,400 over the life of a loan.

“This legislation will be a vital first step towards helping lower college costs for millions of low- and middle-income students, while keeping our promises to taxpayers to maintain responsible spending,” said Rep. George Miller, California Democrat and chairman of the House Education and the Workforce Committee.

Mr. Miller is a sponsor of the bill, a signature item on the Democrats’ first 100 hours agenda. The version is trimmer than legislation crafted last year, which would have cut interest rates on student loans immediately rather than gradually.

“They’re running into reality,” said Rep. Howard P. “Buck” McKeon of California, the top Republican on the education panel.

Democrats estimate that the legislation will cost $5.85 billion over five years. The National Taxpayers Union said the original version from last year would have cost $37 billion.

The Bush administration opposes the bill. The Office of Management and Budget said the legislation won’t help current students or their families and that encouraging more student debt can fuel higher tuition costs. Colleges must join the effort to make education affordable, an OMB memo said.

“The Administration will continue to work with Congress on a comprehensive approach to improve college access for the neediest students, in a fiscally responsible manner,” the memo said.

Democrats call the bill a first step in addressing higher education costs, which have risen 41 percent since 2001 and leave the average graduate with $17,500 in federal loan debt. Similar legislation will move in the Senate as well.

Democrats also have pledged other measures to ease the load of student loans, such as increasing the maximum Pell Grant award.

The Young America’s Foundation suggested that increased federal funding would create “a perverse market incentive” for schools to inflate costs.

More federal dollars to higher education “will only expand the problem of affordability while allowing schools to amass even larger fortunes on the backs of beleaguered American taxpayers,” a foundation memo said.

Mr. McKeon called the House bill “well-intentioned” but said Congress should address the root of tuition increases, in part by asking education institutions to account for big-ticket spending items that help drive up costs. He will offer his own legislation today as an amendment to the Democrats’ bill.