Interest turns to student-loan bill

Hillary Wicai Jan 16, 2007

KAI RYSSDAL: House majority leader Steny Hoyer has a neat little feature on his website, don’t know if you’ve seen it. It’s a clock tracking the time left on the House Democrats’ first 100 hours. A little less tham 24 left now. And according to their checklist, Democrats are set to take up their next big issue tomorrow: interest rates on student loans.

The bill coming to the floor would cut the rates on some of those loans in half. But who’s going to pay for that? That’s where Marketplace’s Hillary Wicai fills us in.

HILLARY WICAI: Some students joke that financing a college education these days is like mortgaging your brain.

All kidding aside, Jennifer Pae with the U.S. Students’ Association says more and more are getting priced out.

JENNIFER PAE: Twenty years ago, anyone who wanted to go to college could afford to do so. Now, we’re not only facing students working more and longer hours, but the level of debt is up to the point of unmanageable levels of debt.

Lenders are worried about the cost of college too, but they oppose Congress’s plan to cut interest rates. That’s because lawmakers leave them footing the entire $6 billion cost. The bill will trim the subsidies the government gives to lenders.

Harrison Wadsworth is with the Consumer Bankers Association.

HARRISON WADSWORTH: The student loan program is a program where people who have no money, no job, no credit are allowed to borrow thousands of dollars at below-market interest rates. This happens because the government guarantees that the banks who make these loans are gonna get a reasonable return on their investment.

Lenders say as the rate of return on student loans slips, students will ultimately pay.

Tom Joyce is with Sallie Mae, the nation’s leading student loan provider.

TOM JOYCE: It could mean that certain smaller lenders decide to exit the business, because as it is margins are razor thin.

Joyce says lenders make less than half a penny for every dollar loaned to students. Still, bankers seem resigned to the bill passing the House tomorrow. They hope to change the funding plan when a similar bill comes up in the Senate.

In Washington, I’m Hillary Wicai for MarketPlace.

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