Students are bracing themselves for a greater financial burden after President George W. Bush signed the controversial Deficit Reduction Act of 2005 into law last Wednesday. The legislation, which cuts $12.7 billion in funds for higher education, will raise interest rates on loans for college students.
“It’s outrageous because we have a lot to think about after we graduate,” said John Oros, an architecture major. “It’s just going to increase our debt.”
Loans disbursed on or after July 1 will be set at fixed rates higher than the current level. The interest rate on Stafford loans will be fixed at 6.8 percent, where most Stafford loans are currently pegged at rates of 4.7 percent for in-school students and 5.3 percent for out-of-school students, the San Francisco Chronicle reported Sunday. The Parent Loans for Undergraduate Students program, known as the PLUS loan, will have an interest rate fixed at 8.5 percent from the current 6.1 percent.
“An increase in student loan interest rates would … make college unaffordable for some potential students,” said Edward A. Tomczyk, a Temple economics professor. Tomczyk said the focus of the $40 billion deficit-reducing law, where almost one-third of the cuts are targeted at reducing student-loan programs, is not necessarily good for the U.S. economy.
“Most agree that increases in education are the key to competitiveness in the world economy and future economic growth,” he said.
Temple administrators are still trying to determine how the changes in the federal student loan program will affect students.
“We are still analyzing the budget proposed by [President Bush]. It wouldn’t have an impact on students until the ’07-’08 year,” said Mark Eyerly, the university’s chief communications officer.
The university’s state funding has been decreasing while tuition continues to increase. As of 2000, out-of-state students who received room and board paid $18,804 in tuition. As of 2005, tuition, including room and board, increased to $25,034.
In 2005, in-state students paid $17,438 including room and board. In 2000, they paid $13,430.
Although administrators are still trying to figure out how the proposed budget will affect students, it will likely mean harder times for low-income students as they may have to make higher payments to pay off the interest and make a dent on the principal. As of fall 2002, the average Temple student graduated with $22,000 of debt.
“It gives me a little bit of relief because I should be graduating next fall,” Oros said. “Hopefully I won’t have any problems and graduate on time.”
The bill passed the Senate in December by a margin one vote, 51-50, with Vice President Dick Cheney casting the tie-breaking vote. The bill barely made it to the president last week, having passed the House by only two votes, 216-214, on Feb 1.
Ten million students use the Stafford Loan to help offset the cost of tuition, according to the Congressional Budget Office.
The deficit-reduction law is designed to help reduce the federal budget deficit, which Bush pledged to cut in half by 2009 from 2004’s record $412 billion deficit. The CBO projects a $337 billion budget deficit for this year.
Renita Burns can be reached at email@example.com. Staff writer Sulaiman Abdur-Rahman contributed to this report.