Education financing legislation has made its way through the U.S. Senate, House, congressional conference committee and was signed by the president on Sep. 27.  While the final version of the bill, H.R. 2669, should be considered a good step, it did take on some serious water in the reconciliation process.  Interest rate reductions are still included, though in limited form, Pell Grant increases survived as well as watered-down versions of Income-Based-Repayment and debt forgiveness.  Much warranted cuts in loan insurance for private lenders will pay for much of the legislation and will help to reduce the subsidization of corporate lender profits. Here is a summary of some of the more significant provisions.

INTEREST RATES

Interest rate reductions, to be phased in over time, are limited to undergraduate loans and, for loans in the more profuse FFEL Program, are also limited to subsidized Stafford only.  Since new statistics show that the average undergraduate student leaves school saddled with $21,000 of educational debt (an 8% increase over the previous year), for most students, subsidized loans alone are not enough to finance an education. 

INCOME-BASED-REPAYMENT

Income-based-repayment survived reconciliation, which is very good news for FFELP borrowers.  However, if you elect an income-based-repayment plan, while your monthly payment will be limited to 15% of your disposable income (income above 150% of the poverty threshold), monthly interest that is unpaid still accrues on unsubsidized loans and will accrue on subsidized loans after three years of IBR.

What this means is that, if a borrower has difficulty making student loan payments for a few years, but manages to improve his/her financial situation to the point at which they can elect to end IBR, the monthly payment now becomes much higher than it was before participating in IBR.  This has the danger of guaranteeing decades of debt for graduates who struggle financially even temporarily. One saving grace is that unpaid interest does not capitalize until a borrower elects to end IBR, not an insignificant provision.

LOAN FORGIVENESS

There are provisions for debt forgiveness included.  The FFELP, as the Direct Loan Program already does, will now provide for total loan cancellation after 25 years of repayment.  However, the amount of loan forgiveness is treated as taxable income.  The loan forgiveness provision for 10 years of public service is still in the bill, however, it applies only to those in the less profuse Direct Loan Program. 

Text of H.R. 2669

COMMENTARY

In an effort to maintain H.R. 2669’s deficit-neutrality, many of the more sweeping provisions were weakened considerably.  Deficit-neutral sounds good, but what it really means is tax-cut neutral.  God forbid we should repeal any of the Bush administration’s irresponsible tax cuts to encourage and protect members of our society who choose to educate themselves.  Why don’t we ever hear the term “deficit-neutral” in conjunction with the Iraq occupation?  An educated society is a stronger society, a more competitive society with a more skilled work force.  Two of the biggest contributing factors to the current soaring Irish economy are tax incentives for businesses and the presence of an educated workforce. If we can’t change our system to work more for the students than for corporate lenders, why should we keep the system at all?  Perhaps we should be looking to Europe for guidance on state-funded education along with things like national healthcare.