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Student loan fight on Hill raises angst in academia

Soaring tuition tied to interest rate subsidy

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As lawmakers move toward a last-minute deal to keep student-loan interest rates from doubling on Saturday, the nation's universities can do little except sit, wait and hope for the best.

The potential rate increase, academic analysts say, likely will have minimal impact on admissions, but the down-to-the-wire negotiations on Capitol Hill do create an atmosphere of uncertainty in the world of higher education.

"When you get down to these last-minute things, that element of unpredictability is what institutions are concerned about," said Megan McClean, director of policy and federal relations at the National Association of Student Financial Aid Administrators. "Financial-aid officers are very interested in making sure the student-loan programs are affordable and predictable."

Right now, however, the situation is anything but predictable.

Congressional leaders reportedly are nearing a deal to keep the interest rate for subsidized student loans at 3.4 percent. Both Republicans and Democrats want to prevent the rate from rising, but the political wrangling has centered on how to offset the roughly $6 billion in losses to the federal treasury if the rates remain low.

Republicans have suggested increasing the amount that federal workers contribute to their pensions, among other ideas. Democratic solutions have included raising some taxes on wealthy Americans.

The debate comes as the Obama administration continues its larger aim of reining in ever-rising tuition costs and easing the debt burden on college graduates, a goal Education Secretary Arne Duncan reiterated Tuesday.

"We don't want students and families taking on more debt than they need. We don't want them defaulting [on loans]. Worst of all, we don't want them deciding they cannot afford college," he said during a speech to the Association of Public and Land Grant Universities.

Education specialists say it's a lack of planning, both from prospective college students and their parents, that typically leads to the post-graduation financial trouble and loan defaults of which Mr. Duncan spoke.

Regardless of whether the interest rate remains at 3.4 percent or rises to 6.8 percent, analysts say incoming freshmen pay little attention to the cost of higher education, meaning virtually no one will decide to skip college just because they'll be in deeper debt after graduation.

"They don't care. If you're sitting down with a freshman or sophomore, at this point in time in their lives, they just don't care because they aren't paying yet," said Bob Moran, director of federal relations at the American Association of State Colleges and Universities.

Institutions, Mr. Moran said, will see "no real impact" from the resolution of the interest-rate battle, whichever way it turns out. The amount of taxpayer money provided to students, through both loans and other avenues such as Pell Grants, is unlikely to change, he said.

But the debate does underscore the need for lawmakers and the heads of colleges and universities to address the deeper problem of out-of-control tuition costs, and the appropriate federal response to them, said Richard Vedder, director of the Center for College Affordability and Productivity.

"I think the student-loan program is a marvelous example of the law of unintended consequences," he said. "The very existence of these programs has allowed colleges to raise tuition. I think college presidents are starting to realize that this is getting out of hand, the debt-to-income ratio [of graduates]. We can't just continue to raise tuition. It's starting to sink in, but it's sinking in slowly."

Making cuts to the student-loan program - or, as a first step, letting interest rates rise as scheduled - is politically dangerous, but an increasing number of leaders in higher education believe the current system must be changed.

"What this debate is doing is highlighting a huge policy discussion that needs to take place: is the federal government doing too much for student loans? We can't afford it," Mr. Moran said.

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