Reporting on a measure recently passed by the Democratic-controlled U.S. House of Representatives that would reduce interest rates on need-based student loans, KUSA 9News co-anchor Bob Kendrick uncritically stated that the Bush administration opposes the bill because of its nearly $6 billion price tag. In fact, the bill's cost would be offset by cutting payments to lenders and agents.
In a segment on the U.S. House of Representatives' recent passage of a measure that would lower need-based student loan interest rates gradually over the next several years, KUSA 9News co-anchor Bob Kendrick uncritically reported during the January 17 broadcast of 9News at 10 p.m. that the Bush administration opposes the bill because it would cost taxpayers about $6 billion. In fact, as the Los Angeles Times and other media outlets have reported, the bill's "$5.8-billion cost would be offset by cutting payments to lenders and guarantee agents."
The College Student Relief Act of 2007 (H.R. 5) -- which passed 356 to 71, according to the Times -- "applies to the 5.5 million subsidized Stafford loans given each year to students whose families earn $26,000 to $68,000 annually, but would not increase Pell Grants or student tax credits, as originally considered. The bill also sets a five-year phase-in of the interest rate reduction from 6.8 percent to 3.4 percent, but then, after six months at 3.4 percent, returns the rate to the original percentage." The Times also reported on the Bush administration's opposition:
[T]he Bush administration questioned the wisdom of encouraging more loans rather than grants. "Student debt loads have soared in recent years, and it is not clear that encouraging more loans is a wise course. Instead, the administration would support efforts to direct savings to additional grant support for low-income students," said a statement issued by the Office of Management and Budget.
Likewise, a January 18 article in The New York Times reported, "House Democrats on Wednesday pushed through legislation cutting the interest rate on federally subsidized loans to college students, drawing on large bipartisan support despite opposition by the White House." It continued:
The measure, which will halve the interest rate over the next five years, is estimated to cost $6 billion, which would be financed by increasing fees that lenders pay to the government and by reducing the 30 or so largest lenders' government-guaranteed profits on student loans.
The Bush administration's official statement did not mention the cost of the bill.
The College Student Relief Act of 2007 is part of the House Democratic leadership's legislative agenda to be implemented in the first 100 hours of the 110th Congress. The bill adheres to the Democrats' promise to introduce legislation fully reinstating "pay-as-you-go" (PAYGO) budget rules, which require that all tax cuts and spending increases be offset by equivalent tax increases or spending cuts. As the House Committee on Education and Labor's website explains, "Collectively, the offsets below will pay for the entire cost of cutting interest rates in half":
1. Decrease lender Special Allowance Payment (SAP) rate by 0.1 percentage point. This provision exempts the lowest 10% of cumulative volume in the student loan market. The bill protects 99% of the banks in the program.
2. Lower lender insurance rates for private lenders to 95%.
3. Eliminate "Exceptional Performer" Lender Status.
4. Increase lender origination fees to 1%.
5. Lower guaranty agency collection fees to 20% next year and to 16% by 2010.
6. Increase the annual fee to 1.30% on consolidation loans. This provision only applies to banks with 90% or more of their holdings in consolidation loans.
In addition, the nonpartisan Congressional Budget Office's analysis of H.R. 5 found that the bill would "reduce direct spending by $65 million over the 2007-2012 period and by $7.1 billion over the 2007-2017 period."
From the January 17 broadcast of KUSA's 9News at 10 p.m.:
KENDRICK: The U.S. House has voted to cut the interest rate on students' need-based loans to about 3.4 percent. The drop is from 6.8 percent. It would affect about 5 million college students each year. Now, the Bush administration opposes the bill; it says it would cost taxpayers about 6 billion dollars.