Low- and middle-income college students could get a break on their
student loans next year — if Congress can defy the wishes of private
lenders.
A little-known provision in a 1993 law may lower student-loan
interest rates by a full percentage point beginning next July. The
change involves what benchmark lenders use to determine interest rates.
But banks and other financial institutions stand to lose about $9
billion if the measure takes effect, student leaders say. Most of these
savings would pass through to borrowers.
“This change is something we’re trying very hard to protect,” said
Erica Adelsheimer, legislative director for the United States Student
Association (USSA). “In our view, banks have made a lot of money off
student loans.”
Representatives of the guaranteed loan system say the new rules
could drive them out of the program, however, causing a disruption in
loans to students.
“Under the change, you can expect to see a shrinking market for
student loans,” said Mark Cannon, executive director of the Coalition
for Student Loan Reform, which represents those who administer the
guaranteed loan system, called Federal Family Educational Loans, in
which banks provide loan capital.
Cannon characterized the 1993 law as a way to undermine private
lenders and create more business for the government-backed direct-loan
program favored by the Clinton administration.
“Some will say the 1993 change was a diabolical scheme and a
ticking time bomb under the guaranteed student loan program to favor
direct lending,” he said.
