For Immediate Release
March 17, 2004
Kate Rube, State PIRGs’ Higher Education Project, 202-546-9707
Mary Cunningham, U.S. Student Association, 202-347-8772
Brad Scriber, Consumer Federation of America, 202-387-6121
Luis Figueroa, Consumers Union, 202-462-6262
For Proposal to Increase Loan Interest Costs for Student Borrowers;
Groups Call for Comprehensive Set of Student Loan Reforms
Washington, DC – Several consumer and student groups today criticized Sallie Mae and other large financial institutions for lobbying Congress to change the federal education loan programs so student borrowers could no longer lock in a fixed interest rate when they consolidate their student loan debt, a move that would increase profits for lenders, but increase the amounts in loan interest paid by student borrowers.
The House Education and the Workforce Committee held a hearing on the student loan consolidation program today, in anticipation of potentially changing the consolidation program during the upcoming reauthorization of the Higher Education Act, which is slated to occur during the next several months.
In a letter sent yesterday to the Chair of the House Education Committee, some of the largest players in the student loan industry, including Sallie Mae and the Consumer Bankers Association, urged Congress to eliminate the fixed rate benefit in the student loan consolidation program.
If the interest rate on consolidation loans was made variable, the average undergraduate borrower with a $20,000 student loan debt would pay an additional $7,807 in interest costs over a twenty-year repayment period, using Congressional Budget Office projections for future interest rates.
“Increasing the costs of borrowing for students only makes college more unaffordable,” said Kate Rube, the State Public Interest Research Groups’ Higher Education Associate. “At a time in which the cost of a college education is escalating, Congress should be exploring ways to make loan repayment less burdensome for students, not more expensive.” She cited the need to expand loan forgiveness programs, end the single lender rule that limits consolidation choices and giving borrowers a chance to refinance when interest rates are low.
This proposal to increase student loan costs for borrowers is being considered at a time in which state budget cuts are driving some of the largest college tuition increases ever, and Congress has proposed a budget for next year that level funds federal student aid programs. “For Congress to freeze education funding for the maximum Pell grant over the last three years while also considering cutting back on student borrower benefits like consolidation is irresponsible,” said Rebecca J. Wasserman, President of the United States Student Association.
In a letter circulated last week to members of the House Education and the Workforce Committee, representatives of the State PIRGs’ Higher Education Project, Consumers Union and the Consumer Federation of America argued that changing the student loan consolidation formula from a fixed rate to a variable rate will “hit young Americans hard right at a time when they are already struggling under the heavy burden of paying for college.”
“Students are graduating from college with increasingly unmanageable levels of debt. The payment shocks that recent graduates would very likely face with variable rates or under extended repayment plans threaten their homeownership prospects and long term financial stability,” said Brad Scriber, a spokesperson for the Consumer Federation of America.
In the letter, the groups also urged Congress to preserve and expand the Direct Loan Program, retain the standard ten year loan repayment plan, require student lenders to report positive loan payment history to all national credit reporting agencies, increase grant money applied to education costs, expand loan forgiveness programs, eliminate or reduce loan origination fees, and support financial aid student literacy at all stages of the loan process.
A college education, like a home, has become an expensive investment that affects the whole family and their means of support, and these costs are rising. In the past decade, average student debt has risen 58 percent, with the average college graduate now leaving school with more than $17,000 worth of federal loan debt, according to the College Board’s Trends in College Pricing. Under the changes proposed by Sallie Mae and other lenders, the costs of repaying this debt would substantially increase.
“It’s hard to believe that Sallie Mae, a company created by the federal government to help students obtain the financing they need to attend college, would advocate a policy change that could double the amount of interest that students pay on their loans,” said Ms. Rube.
According to the consumer groups, the costs of higher education have become as much a consumer issue as an education issue. “Helping get young Americans on their feet and easing the enormous burden of paying off their student debt is good public policy, and the federal student loan consolidation program has provided a tremendous benefit to hundreds of thousands of young people over the past several years,” said Luis Figueroa of Consumers Union.
According to a recent Nellie Mae study, 38 percent of student borrowers delayed buying a home and 30 percent delayed buying cars due to student loan burdens.
To read the letter, click here.