Relief for Student Borrowers?

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Kennedy to Introduce Bill

At this point, the outcome of the interest rate measure remains hazy. Sallie Mae and the other top lenders, including Citibank (C), Bank of America (BAC) and Wells Fargo (WFC), are powerful players in Washington—in 2005, SLM reported spending $1.46 million in lobbying expenses—and the measure still has to make it through the nearly evenly split Senate. Sen. Edward Kennedy (D-Mass.), chairman of the Senate committee that oversees education, is also expected to introduce a larger bill addressing the interest-rate cut and other proposed changes to the student-loan program.

A statement released the day before the vote by the White House Office of Management & Budget made it clear that President Bush opposed the House bill. "Instead, the administration would support efforts to direct savings to additional grant support for low-income students," the statement said. "Furthermore, encouraging more student debt can also fuel today's upward tuition spiral."

Still, middle-class concern about the escalating cost of colleges, both private and public, is a potent driver, and college students and interest groups have organized around the issue. Earlier this month, the Campaign for College Affordability—made up of groups including the National Education Assn., Rock the Vote, the NAACP, and the United States Student Assn.—sponsored "College Affordability Day." On Jan. 11, students from around the country participated in a news conference in D.C., put flyers around their campuses, and called and wrote letters to members of Congress.

In a nod to the latest method of mass organizing, the campaign also created a Facebook group, which now has almost 35,000 members and has become a forum for university community members to debate and share financial woes (see BusinessWeek.com, 1/16/07, "Colleges Ease Access to Financial Aid").

Support from Student Governments

Some student government organizations—including the University of Florida and University of Washington—passed their own bills backing the House bill in recent weeks. Three Florida student leaders traveled to Washington on Jan. 17 to meet with lawmakers and publicize the university's support for lowering interest rates.

Although the House didn't act on Pell Grants, Kennedy's Senate proposal calls for boosting spending on the program. Mark Kantrowitz, publisher of FinAid.org, says the grants are important for low-income households. "Middle- and upper-income students understand they're investing in their future. Low-income students understand it intellectually, but the fear of debt is so strong they just don't go to college," Kantrowitz said.

Just because Pell Grants aren't getting an increase doesn't mean the House bill won't be effective, said Mark Warner, assistant provost for enrollment services and director of student financial aid at the University of Iowa. At Iowa, 60% of the financial aid portfolio is made up of loans. "Some are students who receive federal Pell Grants. But federal Pell Grants are only 25% of the cost. Clearly, a lot of those students have to borrow," said Warner.

Warner says students are often discouraged from pursuing graduate work because they've had to borrow such a large amount of money as undergraduates and the repayments are too high. And many of those students choose higher-paid positions as opposed to jobs they would rather take that are historically lower-paying. Said Warner: "Those are two very important things that will be positively impacted by cutting in half the interest rates."

Gordon and Miller are reporters with BusinessWeek.com in New York.