Posted on: Thursday, April 22, 2004

THE COLOR OF MONEY
Lawmaker should stick with facts on federal student loan program

By Michelle Singletary

When there's a fight in Congress, reports and news releases from both sides of an issue are often issued with alarming language to support a certain position.

This certainly has been true with all of the legislative proposals being recommended as Congress takes up the reauthorization of the Higher Education Act, which governs the federal student loan program.

But one issue in particular seems to have people playing loose and fast with the facts.

For example, Rep. John Boehner, R-Ohio, the chairman of the Committee on Education and the Workforce, recently sent a letter to all House members in support of changing the interest charged to borrowers on consolidated student loans from a fixed to a variable rate. Consumer advocates contend such a move could significantly increase loan payments for borrowers.

I recently wrote about this issue and thought I could turn away from the debate for a while and fuss about some other personal finance matter.

But then I got an e-mail from the press secretary for Boehner's committee. She sent me the details of Boehner's letter. Rather than sway me to change my mind in favor of variable interest rates, the letter got me steamed. Boehner should have gone into advertising. He's good at hyperbole.

One of the headlines on the letter said: "Subsidies Will Go to Higher-Income Graduates, Not Low- and Middle-Income Students Struggling to Attend College."

Boehner writes: "The ballooning cost of fixed-rate consolidation loans is a direct threat to college access for low- and middle-income students — the students who should be our first priority as Congress reauthorizes the Higher Education Act."

To back up his claim, Boehner used information from a report by the General Accounting Office that he says found the chief beneficiaries of federal consolidation loans are not low- or middle-income students striving for college, but higher-income individuals who have graduated and entered the work force.

Really?

Because I read the GAO report and it does not say consolidation loans generally benefit rich people. Boehner didn't use the word rich, but that's what is implied in his letter. Notice Boehner used the words "higher-income." His assertion may be true, and yet it is very misleading.

What the GAO report said is that the average income level for those who consolidate their student loans is $47,150.

That's only slightly higher than the median U.S. household income of $42,000.

So yes, technically people who consolidate their student loans do have incomes higher than those who don't consolidate. I would think earning $47,000 a year still qualifies you as middle income.

However, for the sake of argument, let's say that the consolidation program is benefiting people who studied medicine. We all assume doctors are high-income individuals who don't need the government's help, right?

Well, let's look at the facts.

The average U.S. medical student has $104,000 in student loan debt, according to the American Medical Student Association. First-year medical residents earn on average $33,387 a year, according to the association.

Assuming a debt level of $100,000, AMSA calculated that a variable rate would increase interest on loans by $17,000 over a 10-year period and $39,375 over a 20-year period.

OK, so maybe you still can't feel sorry for a group of people who have the potential to earn six-figure salaries.

But the truth is the majority of people who take advantage of the federal loan consolidation program aren't BMW-driving doctors or other high-income earners living the high life because they have low-interest subsidized education loans. As it is, an estimated 39 percent of student borrowers are graduating with unmanageable levels of student debt, according to a report by the Public Interest Research Group's Higher Education Project.

The federal consolidation program was created to simplify loan repayment and help borrowers manage their debt payments after college. And that is happening.

If the program stays as it is, it's not a vote in favor of wealthier graduates at the expense of aid to low- and middle-income people.

The federal student loan program may be about to undergo some major changes, some of which could cost borrowers a lot of money.

At the very least Boehner should be straight with the facts.