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Washington Partner Perspectives For January 16, 2007

Today’s questions are answered by John Dean, a principal at the firm. Mr. Dean also serves as Chairman of Higher Education Washington, Inc.

The House is scheduled to vote this week on a bill that would phase in a reduction on interest rates on subsidized Stafford Loans over five years. How excited about the bill are the Washington higher education groups?

Dean: Those groups speak for themselves, of course, and they have sent a letter to Chairman Miller endorsing the bill. But I sense they are much more interested in raising the Pell Grant maximum to $5,100. Some of them seem almost to regret that the one higher education bill virtually certain to be enacted this year is focused on a largely untargeted award of new subsidies on student loans and is not likely to make a major contribution to getting more kids into and graduating from college.

How did we get here? Where did the 6.8 percent borrower interest rates come from?

Dean: Ironically, it was U.S. PIRG and the U.S. Student Association, the same two groups that vocally protested that the Republicans had raised student loan interest rates in last year’s reconciliation bill. The two student groups insisted on including a fixed interest rate of 6.8 on Stafford Loans made on or after July 1, 2006, in a bill considered by Congress in 2002. I say ironic because the Republicans and the student loan industry people involved in the discussions wanted a variable rate.

Are you surprised at the inclusion of the savings offsets in the bill, all of which impact loan providers in the Federal Family Education Loan Program?

Dean: No. Chairman Miller has not been shy in expressing his view that federal costs associated with the program remain too high. He appears confident that making another $6 billion in cuts to the FFEL program less than a year after Congress enacted gross cuts of over $15 billion to FFEL will not hurt the program or, if it does, borrowers can simply get their loans from the Direct Loan program.

Will the student loan interest rate cut get enacted?

Dean: As of today, it would appear likely, but the bill may end up having a long road ahead of it if the Bush administration weighs in against it, as I expect them to, or if the Senate HELP Committee decides to spice things up by coming up with an alternative to it that might better focus program changes on borrowers who are experiencing trouble repaying their loans.