Update: U.S. House Approves Student-Loan Interest-Rate Cut

The U.S. House of Representatives has approved legislation that would cut in half student-loan interest rates during the next five years. The College Student Relief Act of 2007 was approved on a vote of 356 to 71.

The measure would reduce in annual increments the Stafford-loan interest rate from the current 6.8 percent to 3.4 percent by July 1, 2011. The reduced interest rates would apply only to new, subsidized Stafford loans to undergraduate students.

The estimated $7-billion cost of the interest-rate reduction would be offset by cuts to organizations that provide services in the Federal Family Education Loan Program. The measure calls for reductions in lender special-allowance and insurance rates, as well as in the percentage of default collections that student-loan guarantors may retain. The legislation also would increase lender-paid origination fees and rebates required of certain lenders based on their volume of consolidation loans, and it would eliminate higher levels of insurance for lenders identified as exceptional performers.

President Bush has expressed opposition to the bill. The White House notes that the legislation directs federal subsidies to college graduates, not to students and families who are struggling to meet current and future educational expenses. Instead, the administration would support efforts to direct savings to additional grant support to low-income students.

The measure now moves to the Senate, where it is expected to be incorporated in a broader bill to complete the reauthorization of the Higher Education Act.