Bill to Cut Student Loan Rate Advances

The House Education Committee approved legislation Thursday that would cut the rate lenders may charge students for government-guaranteed loans.

The measure, contained in a spending bill for higher education programs, would cut the five-year average interest rate on these loans to 7% from 7.8%. That cut is already scheduled to take effect July 1 under a provision of a 1993 law that lenders did not start really paying attention to until late last year.

However, this bill, in order to appease lenders, would supplement interest payments so the effective rate would be 7.5%. The Clinton administration has criticized the compromise, arguing that the $300 million annual supplement is unnecessary. And bankers do not like it any better, arguing that the concession still does not make lending to students profitable. Some institutions have threatened to stop making guaranteed student loans.

The spending bill was approved 38-3.