DECREASING STUDENT DEBT—PIRG Student Leader Sarah Clader speaks at a news conference with congressional supporters of student aid. The House of Representatives went on to pass a bill to cut student loan interest rates.

Lowering Interest Rates On Student Loans

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, more than one-third of the total, 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 Congress intent on tax cuts to one more interested in restoring money to federal programs. The change, however, also occurred in response to a nationwide 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—with Vice-President Cheney cutting 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, we made college more affordable for students. Here’s a quick description on how it all played out.

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 showed how the growing debt carried by many students can diminish their career opportunities. For example, we found that 23 percent of four-year public university graduates can’t afford to live on a teacher’s salary because of their high debt levels.

Part II: Grassroots Organizing
Thanks to our research making headlines across the country, we were able to kick our organizing into high gear.

We helped bring together 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 CALPIRG was introduced by Sen. Edward Kennedy of Massachusetts. The bill would cap the percentage of income that recent graduates need to devote to loan repayment at 15 percent.

By the time Rep. Nancy Pelosi put together her 100-hours agenda, we had made a strong case for increases 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 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, CALPIRG released a report analyzing its impact. The report and its analysis were widely quoted in the media and referred to by legislators. Chairman of the Education and Labor Committee Rep. George Miller circulated a letter to all members of Congress encouraging them to read the report.

On January 17, riding a wave of national attention and growing public concern, H.R. 5, the House bill to lower interest rates, passed by a vote of 356 to 71.

In his floor statement, Chairman Miller addressed the support of U.S. PIRG—the Federation of State PIRGs (which includes CALPIRG), 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. CALPIRG 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.