Wednesday, January 10, 2007
House Bill to Halve U.S. Stafford Loan Rates.
The bill would target subsidized Stafford loans. (Public Blog link here.)

The plan is to reduce interest rates over five years, from 6.8% to 3.2%. It remains unclear how PAYGO legislation will interact with this bill, although moving to lower-cost direct loans rather than administered loans from private companies (Sallie Mae, Nelnet, et. al) is a distinct possibility. Regardless, that $6 billion will have to come from somewhere.

I know Uncle Bill is not a fan of this plan, but I think he misinterprets how student loans are funded. Private companies administer Stafford loans on behalf of the government; they don't just start offering them out of the goodness of their hearts. They do it because it is highly profitable (which, again, leads back to expanding the cheaper direct loan program). At any rate, if the government chooses to fund lower-cost loans, then it WILL be a hit to the taxpayer, but the Department of Education estimates that every $1 of student loan assistance returns $3 in revenue over a student's lifetime. (pdf, page 7)

I'll be watching this with great interest.



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