H.R. 5 will not reduce rates for current undergraduates, as it only applies to loans for which the first disbursement is made after July 1.
The federal government awards subsidized Stafford loans to low-income families and students and pays the interest while borrowers are enrolled in college. This year, 1,690 Brown students borrowed subsidized Stafford loans, according to James Tilton, director of financial aid.
Depending on a student's class year, the maximum subsidized Stafford loan ranges from $3,500 to $5,500.
"If we're looking at lower interest rates, we're certainly able to speak to students about the cost of education being different," Tilton said.
Critics argue the bill is ineffective or counterproductive. "As you increase aid, you tend to see college tuition increase as well. It winds up undercutting the original purpose (of the aid), and it costs taxpayers," said Kate Matus, press secretary for Rep. Paul Ryan, R-Wis., an opponent of the bill, which passed the House 356-71.
Matus also said the 3.4 percent rate only benefits the small segment of students who apply for subsidized Stafford loans in 2011. "When lenders face growing costs and little return, they're going to cut services and pass on the expenses to other students in the form of higher fees," she said.
Tilton said certain lending industry subsidies should be carefully scrutinized, but he acknowledged the need for a nuanced plan to cover costs. "It's just so easy to say, 'Let's cut the lender's profit.' Instead we really need to seriously look at what kinds of services might be affected if these changes were made," Tilton said.
The final legislation may differ from the bill passed in the House. "It's very rare in the beginning of a legislative session for both chambers to pass the identical version of a bill," said Wendy Schiller, associate professor of political science and public policy.
Schiller said H.R. 5 might encounter more resistance in the Senate. "(Banking interests) traditionally have done well in the Senate because they span congressional districts. If you're one congressperson, you can probably afford to ignore Citibank or ignore Bank of America," she said. "If you're a Senator from one of these states - especially a state like South Dakota, where there is a lot of credit card business and big banking business - and they threaten to leave your state if you don't support them in opposing the bill ... that's going to hurt."
Sen. Edward Kennedy, D-Mass., introduced the Student Debt Relief Act in the Senate. In addition to halving the subsidized Stafford loan interest rate, the Senate bill would increase the maximum Pell Grant from $4,050 to $5,100 and provide more opportunities for student loan forgiveness.
Proposals to increase Pell Grant awards have been politically popular this winter. The White House and both chambers of Congress are poised to propose the first increase in the maximum Pell Grant award in five years. A Jan. 31 House spending bill recommended an increase from the current $4,050 to $4,310, and last Friday President Bush announced his 2008 budget will propose raising the maximum Pell Grant award to $4,600 next year and $5,400 five years from now.
Tilton said he considers Pell Grants particularly important. Raising the maximum grant sends "a stronger message to families and to students than (does) decreasing the loan interest rates," Tilton said. "A lot of students and families see the Pell Grant as a gauge for being able to determine whether they can afford to even think about college."
Schiller said she doesn't expect a presidential veto of the Stafford loan interest rates cut if it passes the Senate. "I don't think (Bush) cares enough to veto this bill," she said. "He would be philosophically opposed for the same reason Republicans in the Senate would be, but he doesn't need any more bad press."
