July 23, 2005
House Panel Approves Bill to Upgrade Student Loans
By MICHAEL JANOFSKY, NY TIMES

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WASHINGTON, July 22 - The House education committee approved changes in the Higher Education Act on Friday that Republicans said would reduce the cost of loans, making it easier for low-income students to attend college, but that Democrats said fell far short of what students needed to meet rising college costs.

The House Committee on Education and the Workforce passed the bill on a party-line vote, with 27 Republicans in favor and 20 Democrats against, sending it to the floor, where a vote is not expected before September. The Senate plans to introduce a similar bill in the fall. The legislation would reauthorize the Higher Education Act, which governs federal student aid and other programs.

"We're providing meaningful reforms that will expand college access, prioritize the needs of students and protect American taxpayers," said Representative John A. Boehner, the Ohio Republican who is chairman of the panel, which worked more than two years on the measure.

Education Secretary Margaret Spellings echoed Mr. Boehner, saying: "If approved by the full House, the law would make it easier for students to attend college, families to afford college and teachers to pay back college loans. By meeting deficit reduction targets, it also keeps the president's promise to spend the taxpayer's money wisely."

But Representative George Miller of California, the committee's ranking Democrat, attacked the outcome. He said Republicans passed a bill that was intended to wring $12 billion in savings to help lower the deficit. "Everything else the bill did," he said, "is tinkering around the edges."

The savings for the government would come from students having to pay higher interest rates to consolidate loans as well from the closing of a loophole that lets some lenders earn a government-guaranteed interest rate of 9.5 percent on certain student loans.

Under the plan, students consolidating several loans into one can choose between a fixed rate or a variable rate. Consolidation is a popular option for students wanting to lock in a low interest rate. But under the bill, students would have to pay more for a fixed rate, which Democrats said would cost students thousands of dollars in extra interest.

Republicans also rejected an effort by Democrats to lower the maximum interest rate to 6.8 percent, keeping it at 8.25 percent, a level that benefits lending institutions.

Also under the bill, the ceiling on the amount of money a student could borrow, which is now set at $2,625 for their first year and $3,500 for the second, would be raised to $3,500 the first year and $4,500 the second. It would keep the current level, $5,500, for each of two subsequent years.

Loan origination fees, which can now be as high as 4 percent, would be reduced to 3 percent next year and phased down to 1 percent by 2010.

Pell grants, which now reach an annual maximum of $4,050, would increase by $50 a year. A new proposal would make Pell grants available to students who attend classes at night, on weekends or during the summer; the grants are now restricted to students attending fall or spring semesters. The grants would also be made available for the first time to students at two-year colleges.

Democrats said that much more money could have been made available to students. For example, a proposal they made to raise Pell grants by $100 a year was defeated.

Democrats also cited rejection of a bipartisan proposal by Mr. Miller and Representative Thomas E. Petri, Republican of Wisconsin, that encouraged students to take out loans directly from the government rather than from banks, shifting the savings into more money for Pell grants.

Democrats said that would have generated billions of dollars in savings through lower interest rates, but Republicans said hidden costs might have eaten up the savings.

The bill also included several initiatives to provide incentives for teachers of math, science and special education in low-income school districts. A current program forgives such teachers up to $5,000 of their student loans; the new bill increases that amount to $17,500.

The bill also encourages graduate students to pursue teaching careers in those same subjects by offering them fellowships.