The financial aid that nearly half of Georgetown students receive through federally subsidized loans could increase this year due to an amendment currently before the U.S. Senate.
The amendment, co-sponsored by Representatives Chris Van Hollen (D-Md.) and Dale E. Kildee (D-Mich.), would close a loophole in the 1980 Higher Education Bill that results in $1 billion per year in unnecessary subsidies.
The Department of Education currently borrows money from several private lenders, then distributes the money to eligible students as Stafford and Perkins loans. The government pays interest on these loans while students are in college.
According to Alex Noch, a member of the House Education-Work Force Committee Staff, the loophole in the Higher Education Bill fixed the interest rate for federal subsidies at 9.5 percent, disregarding inflation and a fluctuating economy. Consequently, the DOE is now paying a very high 9.5 percent interest rate, compared to the interest rate of 3.6 percent which students pay once out of college.
Momentum to pass the amendment increased after the Government Accountability Office issued a report in which it criticized the DOE for failing to use its full authority to end wasteful spending.
According to the report, although loans from Nelnet, one private lending company, constituted only 8 percent of outstanding student loans, they required more than 78 percent of the funds for loan subsidies within the last fiscal year.
In a Sept. 21 address to the U.S. House of Representatives, Van Hollen said “the report makes it clear that the Department is sitting on its hands while billions of dollars are being diverted away from higher education programs to the banks.”
However, the DOE’s General Counsel, Brian Jones (MSB ‘90), said that the DOE has little control over the student loan process.
“The point everyone seems to be missing: it’s not that we can’t do anything,” he said. “The Higher Education Act requires that we go through a negotiating rule-making process. Selecting negotiators and setting rules takes a long time.”
Supporters of the bill in Congress feel that spending the time to amend the legislation will be well worth their while. Jim Manley, press secretary for Sen. Edward Kennedy (D-Mass.), affirmed Kennedy’s support for the amendment.
“Every dollar in excess payment to companies like Nelnet is one less dollar available to help with student loans,” he said.
However, private loan companies do not foresee increased loan access for students. Laura Grey, Director of Marketing of NextStudent Inc., a small, privately-held lending firm, said that cutting back interest rates will not entirely benefit students.
Grey predicted private loan companies would cut signing benefits and discounts on student loans.
“They’re going to have to make up the money somehow, unless they decide to give it up,” she said.
Georgetown University’s Student Financial Services declined to comment. Laura Cavender, University Director of Media Relations, said that Georgetown will monitor the issue.
According to Noch, the United States Students Association and the United States Public Opinion Research Group are trying to raise awareness among students. However, that information seems to have failed to reach students.
“If the government has any money to spend to allow anyone, regardless of class, to attend college then why aren’t they spending it?” Carmen Fitzsimmons (CAS ‘08), who has a Stafford loan, said. “I know so many kids who won’t go to college because they say, ‘I can’t afford it.’ If the federal government can provide that money, why don’t they?”
Additional Reporting by Tim Fernholz
