Posted on: Thursday, June 3, 2004
THE COLOR OF MONEY
Here's an analysis of the higher-education update bill
By Michelle Singletary
WASHINGTON — House Republican leaders recently submitted a bill they say is in the best interest of college students.
The College Access & Opportunity Act is supposed to expand access to higher education for millions of low- and middle-income students. It was introduced by Rep. John Boehner, R-Ohio, chairman of the Committee on Education and the Workforce, and Howard "Buck" McKeon, R-Calif., as part of the effort to reauthorize the Higher Education Act, which governs the federal student loan program.
Well, I've had a chance to look at the proposed legislation and in a nod to Roger Ebert and Richard Roeper, my two favorite movie critics, here are my two thumbs up or down on various provisions of the bill:
• Thumbs down (way down) for a move that would change from fixed to variable the interest rate for consolidation loans. This is probably the most controversial issue in the bill.
Anyone who has taken out student loans should be paying attention to this proposal. Right now, student loan borrowers can bundle their various loans into one low fixed-rate loan that can be stretched out as long as 30 years. But we all know that interest rates are not likely to stay as low as they have been recently. If the provision passes and the loan rate is changed to variable, a lot of people will pay thousands of dollars more on their consolidated student loans.
• Thumbs up for a proposal to increase loan limits for students in their first and second years. First-year student limits would increase from $2,625 to $3,500. Second-year student limits would increase from $3,500 to $4,500. However, the total amount an undergraduate could borrow would remain unchanged at $23,000.
There are those who think the aggregate loan limits should be higher. I'm not in that camp. Students are already saddled with an amazing amount of debt.
• Thumbs down for not significantly increasing Pell Grants, which are need-based assistance given to low-income undergraduates and certain postgraduate students.
This bill would cap the current maximum Pell Grant at $5,800 through 2011. Last year's maximum Pell Grant award, after adjusting for inflation, was worth $500 less than the maximum award in 1976-77, says Rep. George Miller of California, the ranking Democrat on the House Education and the Workforce Committee.
• Thumbs up for proposing a year-round Pell Grant to help some students who want to accelerate their course-taking.
• Thumbs up for a call to repeal the anti-competitive "single-holder" rule, which requires student borrowers who have all of their loans held by a single lender to consolidate with that lender, even if they could obtain better terms and service elsewhere. Repealing the requirement would allow borrowers to shop around.
• Thumbs up for a plan to eventually reduce student loan origination fees to 1 percent.
• Thumbs up for a provision that would require lenders to report to all the major credit bureaus the payment histories of borrowers.
Sallie Mae, the nation's leading provider of educational loans, received a lot of criticism (and rightfully so) because it decided, without telling its more than 7 million borrowers, that it would report loan information only to Innovis Data Solutions, a small credit bureau, and to Equifax, one of the big three. Amid mounting criticism and threats of legislative action by Senate leaders, Sallie Mae reversed its policy and has resumed reporting the repayment history of its borrowers to Experian and TransUnion, the other two major credit bureaus.
• Thumbs up for a provision that would put the spotlight on institutions that increase tuition and fees at more than twice the rate of inflation over a three-year period.
Overall, there are some good proposals in this bill, but it shouldn't be passed as is because there are enough provisions that either don't do enough for students and graduates or increase their costs.
