Student loan cost might increase

Student loans might cost more in the future with the passage of Senate Bill 1762. The bill, which changes the formula used to figure interest rates on student loans, was passed by the House by a vote of 372 to three, and will now go to the President, who is expected to sign.\nThis bill halts an impending rate reformulation, which would lower the cost of student loans for borrowers drastically. The change was disputed by lenders, who argue that their profit margins would be too small to guarantee loans for students.\nAssociate Director for Client Services in the Student Financial Office, William Ehrich, is not surprised that lenders are seeking new legislation.\n"This is a bill that favors lenders," he said. "Interest rates on student loans fell to 5 percent this year and low profitability is why the bankers want to prevent students from taking advantage of these extremely low interest rates."\nIf the Federal Reserve does not raise the prime rate between now and July 1, the rates, figured by the old formula, were set to fall again, further lowering the cost of student loans. \nAssociate Dean of Academics for the Kelley School of Business, Bruce Jaffee, said that the bankers pushed for the change because the profits reaped from student loans are too insufficient to cover the fixed costs of providing the funds.\n "The rate now is too low for them to meet their profit targets," he said.\nThe rate change will have a mixed effect on students. \n"A fixed rate will help students budget their payments," Jaffee said. Ehrich agreed that the costs might not be lower, but said he believed that the rates will eventually be comparable.\nThere are drawbacks to more costly student loans, including discouraging students from pursuing education or making scholarships more competitive.\n"This rate change may affect colleges at the margin," Jaffee said. "It may encourage some students to only be able to afford the less expensive state schools, while discouraging some students from pursuing higher education at all."\nHigher interest rates might encourage students to seek alternate funding for their education.\n"With loans more costly, I would expect more students to attempt to get scholarships," Ehrich said. "Unless the government increases the amount of gift assistance available, more people will be competing for less money. Scholarships will become very competitive."\nSenior Matt Riley, who financed his education with student loans, said he feels that the loan adjustment is merely profiteering at student expense.\n"Changing the interest of my loans to a higher rate is wrong," he said. "Adjusting the rate of my loan so a bank can make a higher profit off of my education is disgusting. We need educated people in this world, so why should I have to pay more than I have to"