Democrats Promise Lower Student Loan Interest

New Speaker of the House Nancy Pelosi promised to slash student loan interest once the Democrats took over Congress. The rate cut applies only to federally subsidized (the government pays the interest on these loans while the student is enrolled in college) student loans given to students as part of their financial aid packages. Loans taken out by parents of students will not qualify for the rate cut.

The plan is to phase in the rate cuts over the next 5 years, beginning with a cut from 6.8% to 6.1% in 2007.

The plan is to be financed by reducing funds allotted to private lenders who offer student loans. Critics of the plan, including some Democrats, argue that the $6-billion in savings should be used to increase Pell Grants rather than to cut interest rates. Pell Grants are grants awarded to thousands of this country's poorest students to allow them to attend college.

The arguments against cutting interest rates are as follows:

• Reducing interest rates does nothing to increase the affordability of college (Pell Grants would allow tens of thousands of poor students to attend college)
• Reducing interest rates does not encourage any more students to attend college; it just helps those who are already enrolled and have already taken out loans
• Reducing subsidies to private lenders only reduces the number of options available to students and their parents when seeking financial aid

What do you think?