The Democratic-controlled U.S. House of Representatives voted overwhelmingly to cut interest rates on need-based student loans Wednesday, steadily whittling its list of early legislative priorities.
The legislation, passed 356-71, would cut rates on the subsidized loans from 6.8 percent to 3.4 percent in stages over five years at a cost to taxpayers of $6 billion. About 5.5 million students get the loans each year.
The loans, called Stafford Loans, have been a part of the nation's student aid system for decades. At Southeast Missouri State University, 3,300 students received the loans in the fall semester, said Karen Walker, director of financial aid.
While some schools are direct lenders to students, Southeast students use banks such as Commerce Bank, the Bank of America and others, Walker said. Calls to the lenders seeking comment were not returned.
The impact on the Missouri Higher Education Loan Authority, or MOHELA, was unclear. MOHELA wants to sell a portion of its loan portfolio to raise money for construction projects on campuses statewide. The agency already provides discounts that reduce interest rates by as much as 3 percent when borrowers use direct payment options and attend a school in Missouri. Calls to MOHELA offices were not returned.
Though clearly popular, the legislation sparked a debate over where to set the nation's education priorities -- helping college graduates pay off their debts or expanding federal grants for low-income students.
Democrats conceded Congress needs to do more to make college more affordable. But they said reducing student loan rates was a significant step toward tuition relief.
"Many young people find themselves where I was when I was at age 18, wondering what they will do with their lives," said Rep. Linda Sanchez, D-Calif., a daughter of immigrants who is still paying off her student loans. "To those students, especially those whose parents didn't go to college, the prospect of student loan debt is frightening."
The Bush administration opposes the bill, and Senate Democrats plan to bring up a more comprehensive bill that could complicate its prospects.
While the legislation matched the Democrats' pledge to pass student loan measure in the first 100 hours of legislative action by the new Congress, it fell short of their broader goal of lowering interest rates for parents who take out college loans for their children. During the 2006 congressional campaigns, Democrats also said they wanted to increase the maximum Pell grant award from $4,050 to $5,100. Pell grants go only to the neediest students and do not have to be paid back.
Republicans argued that Democrats had chosen a politically expedient way to make good on a campaign promise instead of finding ways to increase federal college grants to help the poor meet rising college tuition.
Staff writer Rudi Keller contributed to this report.