(U-WIRE) WASHINGTON – Congress is looking to ease student loans and encourage and reward new teachers.
A bill passed in the Senate and the House two weeks ago, without opposition, ends the federal guarantee of a 9.5 percent rate of return to student loan lenders. Officials estimate $285 million in savings, which would provide forgiveness for student loans for math, science and special education teachers in underprivileged schools.
Congress passed the original legislation allowing the 9.5 percent return rate about 20 years ago to subsidize lenders when interest rates were higher, said Jim Manley, press secretary for Sen. Edward M. Kennedy (D-Mass). Today, most students pay interest rates of about 3.5 percent on their loans.
In 1993, legislation passed to try to phase out the government subsidy to lenders, but some lenders found loopholes in the legislation to continue to receive federal funds, officials said.
Robert Shireman, director of the Institute for College and Academic Success, said lenders may no longer use “cloning,” or giving loans tax exempt status just long enough to qualify for the subsidy.
“Rather than being squandered, these funds will now provide an important recruiting tool for districts in need of more teachers, reward teachers who commit to underserved populations and better prepare students in those classrooms for success in college or other pursuits,” said Sen. Judd Gregg (R-NH), chairman of the Senate Committee on Health, Education, Labor and Pensions, in a press release.
However, Democrats and student loan advocates said they do not think the new legislation is sufficient. Shireman said the bill still allows “recycling” loans to extend their lives.
“It’s absolutely ridiculous,” he said. “There’s no way Congress intended for this in the 1993 law.”
Manley said that Kennedy would like to permanently end the loophole, which allows lenders when the legislation expires next year.
“Some lenders are exploiting a loophole in the law that is providing them hundreds of millions of dollars that could help students reduce student loans,” Manley said.
Shireman said he estimates a more permanent and complete solution would save taxpayers $2 to 3 billion. With the new legislation, taxpayers are paying $240 million per quarter.
He added that he believes the legislation is not more complete because some not-for-profit organizations benefit from the subsidy, but a bill could have been tailored specifically for those groups.
“I think on the issue of it being permanent, they can come back to it and take credit again for it next year,” Shireman said.
Despite the opposition, officials said many Republicans are pleased with the bill in its current state.
“President Bush was one of the first to propose ending the subsidies as part of his FY 2005 budget proposal,” said Stephanie Babyak, a spokesperson for Secretary of Education Rod Paige, in an e-mail.
In a press release, Paige said the legislation “was the right-and only-way to go to immediately address the problem.”
“The legislation not only closes the loophole but also wisely directs the savings to the nation’s classrooms to help ensure that every child in America is taught by a highly qualified teacher, because we know teachers are the key to increased student achievement,” he said. “I stand ready to have the U.S. Department of Education implement this legislative remedy as expeditiously as possible.”
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