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News

Reduction Act threatens loans

Deficit to be reduced by increasing interest rates 
while creating more Pell Grants

by SABRINA RODRIGUEZ
The Daily Cougar

The U.S. Congress recently passed the Deficit Reduction Act, intended to reduce the federal deficit by $40 billion in five years. Federal student loans represent about .5 percent of the federal budget, but proposed cuts to the student loan program equal 30 percent of the overall reduction. 

"The Deficit Reduction Act makes important improvements to federal student loan programs. The bill cuts excess government subsidies to lenders and makes other reforms that will help us reduce overall student loan costs by about $22 billion. With that money, we will save taxpayers $12 billion -- because we intend to increase student aid by 10 additional billion dollars. What I'm telling you is, the students are getting the money, and we're making the program a lot more efficient," President George W. Bush said during a press conference Feb. 8.

But students dealing with financial aid cut backs are not comfortable with the loan reduction.

"This is really unbelievable. Why would the government do that? There are so many other areas where they are wasting money," psychology sophomore Estella Garcia said.

"It's really hard for me to keep coming to school already because of the cost so I have to get student loans, I have no one but myself to depend on for paying my way through school," said Garcia. 

Interest rate increases are already scheduled for existing student loans starting July 1. The rate for Stafford Loans for students will increase from 4.7 percent to 6.8 percent and the rate on PLUS loans for parents will jump from 6.1 percent to 8.5 percent. 

"It's going to take me forever to pay my student loans back, but education is important to me, so I have to do what I have to do, even if that means paying more interest on my loans," Garcia said.

Despite rising interest rates, the availability of loans will remain the same.

"Luckily I do get help from my parents but I still have to pay most of it on my own. I know that interest rates always go up whether it be now or next year that's just how it is," finance junior Jonathon Penske said. 

The cuts will not affect work-study programs or Pell Grants. Also $3.75 billion will be used to support students eligible for Pell Grants. The current $4,050 maximum Pell Grant award for students from low to moderate-income families will continue to be the standard. 

The Deficit Reduction Act creates more Pell Grants for college freshmen and sophomores receiving $750 and $1,300, respectively.

"I've read up on the budget since there was a lot of talk about student loans and so did my dad, so I know it's not going to be that bad, it just sounds like a lot," Penske said.

The Deficit Reduction Act requires student loan lenders to give the interest incurred from student loans to the government. This will eliminate the lender's profit and potentially limit how many private lenders will take on student loans. 

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