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Today, by a 216 to 214 vote, the U.S. House of Representatives voted to cut $12 billion from the student loan programs as a part of the budget reconciliation bill, the largest cut to these programs in their history.
Rather than cutting lender subsidies, the bill derives most of its savings by continuing the practice of forcing student and parent borrowers to pay excessive interest rates on their loans and by increasing interest rates for parent borrowers. These cuts will pay for tax cuts for some of the wealthiest Americans. In the same budget bill that authorized these student loan cuts, Congress also called for up to $70 billion in tax cuts that will be finalized this Spring.
“Today the House of Representatives completed the largest raid on student aid in history,” explained Erin Eccelston, representative of the Arizona Public Interest Research Group (Arizona PIRG). “At a time when college costs continue to rise and students are going deeper into a financial hole, Congress has mistakenly decided to use students and families to pay for other priorities.”
Nearly 70 percent of the bill’s total student loan cuts of $20 billion come from students and families. The bill cuts:
- Almost $13 billion from excessive subsidy payments that student and parent borrowers make to lenders. This bill uses this money to pay for new tax cuts rather than keeping this money in higher education and using it to pay for additional need-based grant aid or lower student loan interest rates.
- Approximately $2 billion by increasing the parent loan interest rate from 7.9% to 8.5%.
Other changes to the student loan programs included in this bill that could have a significant impact on borrowers are:
- $2.2 billion in cuts to critical student loan delivery funds used to administer the federal student aid programs. Without these funds, the administration of federal student aid is in jeopardy.
- $1.4 billion in revenue generated by a new mandatory 1% insurance fee levied on guarantee agencies for all loans. Lenders could potentially pass on this cut directly to student borrowers.
The budget measure will direct a small portion of the student loan cuts back to students. The bill spends $3.7 billion on grants for students majoring in math, science and foreign languages. In addition, the bill will gradually lower charges for some students, known as origination fees, over the next five years. Finally the bill retains 6.8% as the cap on student interest rates, a measure that will help protect students as interest rates continue to rise.
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