Higher Education Advocate Luke Swarthout

Anatomy Of A Victory: Lowering Student Loan Interest Rates

It was January 2006, and the federal government’s role in helping more Americans afford a college education was a top priority on the congressional agenda—for all the wrong reasons.

In order to finance tax cuts that would largely benefit the wealthiest Americans, congressional leaders were desperate to find money to cut from the federal budget.

Aid to college students took a big hit: Of the $35 billion in cuts proposed, $12 billion, or more than one-third, came from federal student loan programs.

Fast-forward to January 2007.

In a bipartisan vote, the U.S. House voted to lower interest rates on student loans for low- and middle-income families by cutting billions of dollars in subsidies to private banks.

The dramatic turnaround was due to many factors, not the least of which was the shift in power from a Republican-led Congress intent on tax cuts to a Democrat-controlled Congress more interested in restoring money to federal programs.

The change, however, also occurred in response to a “textbook” campaign, led by our staff and fueled by the support of our members.

Raid On Student Aid
Over the past decade, many states have cut funding to higher education even as federal grant aid has slowed.

As students have borne more of the costs of a college education, many graduates have gone deep into debt. Our research indicates that more than two-thirds of students now borrow to pay for college. Between 1993 and 2004, the average debt for college graduates with loans increased by 107 percent.

That’s why we so strongly opposed the $12 billion congressional cut in funding for student aid in 2006, a move that would have increased interest payments by at least $5,000 for the average student borrower.

Despite our best efforts, the U.S. Senate approved the cut on a 51 to 50 vote. The vote was a tie until Vice-President Cheney cut short a trip to Afghanistan to cast the tie-breaking vote.

In early February, the House followed suit, sealing the deal on what our Higher Education Advocate Luke Swarthout called the largest “raid on student aid” in our country’s history.

In the end, though, we reversed the cuts. Here’s a quick description
on how it all played out—a successful combination of research, grassroots organizing and advocacy.

Part I: Research
In July 2006, Swarthout and other staff released city-by-city reports, detailing how student loan borrowing has increased, on average, three times faster than consumer spending.

As health care and housing costs continue to rise, we documented that recent graduates are having a harder time balancing their debts with other core expenditures.

In another study, we documented how the growing debt carried by many students can diminish their career opportunities and have a lasting impact on important life decisions.

For example, we found that 23 percent of four-year public university graduates can’t afford to live on a teacher’s salary, due to their high debt levels.

REVERSING THE RAID ON STUDENT AID—Student Sarah Clader, who attends Rutgers University, speaks with congressional supporters of student aid. The House of Representatives went on to pass a bill to cut student loan interest rates.

Part II: Organizing
Thanks to our research making headlines across the country, from The New York Times to the LA Times, Chicago Tribune and USA Today (to name a few), we were able to kick our organizing into high gear.

We helped organize a coalition of our allies and mobilized students and faculty on college campuses, including the 100 campuses with PIRG chapters, to e-mail or call their members of Congress.

A proposal supported by U.S. PIRG was introduced by Sen. Edward Kennedy (Mass.).

The bill would cap the percentage of income that recent graduates need to devote to loan repayment at 15 percent.

By the time Speaker Pelosi put together her “100 hours” agenda for the beginning of the 110th Congress, we had made a strong case for reversing the cuts in student aid making the high-priority
list.

Part III: Advocacy
In early January, the new House leadership proposed to lower interest rates on subsidized Stafford student loans from 6.8 percent to 3.4 percent over the next five years.

More than 5 million students receive subsidized Stafford loans every year, and the interest rate reduction would save millions of borrowers thousands of dollars over the life of their student loans.

The bill paid for lower interest rates by slightly cutting the subsidies that banks receive to make student loans.

Shortly after the plan was announced, we released a report analyzing its impact. The report and its analysis were widely quoted in the media and referred to by legislators.

STUDENT DEBT—Rep. George Miller, chairman of the Education and Labor Committee, shakes hands with UC Berkeley Sophomore Gabe Elsner.

Chairman of the Education and Labor Committee George Miller circulated a letter to all members of Congress encouraging them to read the report before they voted on the issue.

On January 17, riding a wave of national attention and growing public concern, the House bill to lower interest rates, H.R. 5, passed overwhelmingly.

The final tally was 356 to 71.

In his floor statement, Chairman Miller addressed the support of U.S. PIRG for the legislation.

“There has been a lot of discussion today about who doesn’t like this bill. Maybe some of the lenders don’t like this bill, some of the pundits don’t like this bill. Maybe some of the people who work with the lenders don’t like this bill. The people who like this bill and the people who matter are the students.

“And that is why U.S. PIRG and the U.S. Student Association and so many students support this legislation, because they know what this means to them with the passage of this bill, that their interest rates will be lower. They know this will lower the cost of college.”

Next Steps
Passage of the House bill was an important step, but only a first step toward helping more Americans afford college.

U.S. PIRG is working with Senate leadership to pass comprehensive debt reduction measures, including increases to need-based aid, which, of course, would reduce student loan debt.

On the House side, we continue to work with Chairman Miller as he constructs comprehensive higher education legislation that he hopes to introduce later this year.