Proposed cuts may limit loans

Significant changes could be coming to student loan programs in the future, including $12.7 billion in cuts, as the federal government attempts to reduce spending and lower the deficit. \nThe student loan reductions, which are part of a larger legislation package totaling $39.7 billion in cuts to the federal budget, were previously approved by the House of Representatives and passed in the Senate by a 51-50 margin Dec. 21, with the tie-breaking vote coming from Vice President Dick Cheney. Because of small changes made in the Senate, the bill will go back to the House for a vote, where it is expected to pass and move along to President George W. Bush for final approval. \nIf approved, the bill would eliminate government subsidies to lenders, raise loan interest rates to a fixed amount for students and their parents, and require students to pay a 1 percent fee to government agencies that guarantee loans. \nAt the same time, the bill increases loan limits to $3,500 for freshmen, from the current limit of $2,625, and $4,500 for sophomores, up from $3,500 currently, according to an article in the Chronicle of Higher Education. Loan limits for juniors and seniors will remain the same at $5,500. \nAdvocates also say that the bill creates opportunities for students, through the creation of a new $3.75 billion merit-based Pell grant program, which rewards low income students for high academic performance and who study in math, science and some foreign languages. \nSusan Pugh, associate vice chancellor for enrollment services at IU, said only a small proportion of students would be affected, however, due to the amount of funding. \n"Some students will benefit but the vast majority of students throughout the United States will not receive one of those awards," she said, noting that recipients would be selected nationally, not from specific institutions. \nBill Ehrich, associate director for client services at the Office of Student Financial Assistance at IU, said one of the chief components of the bill -- the elimination of government subsidies to lenders -- would create hardships for students, increasing the cost of borrowing. \n"The banks are going to make less money from the federal government. They are going to pass any losses they take from the federal government onto students," he said. \nRules for interest rates would also change under the bill. The interest rate for loans that parents take out for their children would increase from a variable rate to a fixed 8.5 percent rate, according to the Chronicle. Students would pay a fixed rate of 6.8 percent, a change from the current variable rate of 5.3 percent, but one that was already expected following a congressional decision in 2001.\n"The more money you borrow over your college career, the greater the impact this is going to have," Ehrich said. "It's going to hurt the poor students ... because they really don't have that much margin of error." \nStudents have gathered to fight proposed cuts and to raise awareness on the issue, said Allison Rank, campus organizer for the Indiana Public Interest Research Group. \nLast semester, the group held a call-in day to Congressman Mike Sodrel, R-Ind., when more than 100 students expressed their views on the issue, and now has plans to join other schools across the country in developing what's called a "student debt yearbook" where students will be photographed next to entries describing their debt and situation, she said. \n"We just think it's a poor place to make those cuts. Giving people tax cuts overall that are being paid by students seems wrong," Rank said.