College student loan rate rises.

Byline: Greg Bolt The Register-Guard

The cost of a college education will go up for most students nationwide this year because of budget cuts approved by Congress before it recessed for the holidays.

Any student who borrows money to cover education expenses will pay more under the new rules, which will boost the interest rate on government-subsidized loans taken out by students to 6.8 percent on July 1. How much more they will pay depends on how much they borrow and their own and their family's income.

Currently, students still in school or in deferment on their loans pay 4.7 percent; graduates who are in repayment pay 5.3 percent.

Also, the rates on subsidized loans parents take out for their children's education will rise to 8.5 percent from the current 6.1 percent.

The changes were made so lawmakers could cut $12.7 billion from student financial aid programs as part of an overall $40 billion package of deficit-reducing measures. The cuts are the largest in the history of the student loan program and account for almost a third of the total package, more than any other agency.

That has angered higher education advocates, who say most of the savings will be used to partially fund a new round of tax cuts they say will mostly benefit wealthier taxpayers who can afford to send their children to college without taking on the loan burden of middle- and low-income families.

"The core of this bill is an outrageous effort to ask middle-class families to pay more for college so that some of the richest Americans can get extra tax cuts," said Luke Swarthout, a higher education adviser with the State Public Interest Research Groups in Washington, D.C. "At a time when everyone agrees we need more students going to college and at a time when college costs continue to rise while states and the federal government cut funding for necessary aid programs, Congress has decided to make student loans more expensive."

The bill does contain some bright spots for financial aid advocates, if only in what was left out. For one thing, a proposal to make loan consolidation more expensive was stripped from the final bill, which was a compromise worked out between Senate and House negotiators. The House version would have imposed new limits and higher costs on consolidation.

Also, the legislation increases the amount students can borrow. Loan limits for freshmen rise to $3,500 from $2,625 and for sophomores to $4,500 from $3,500; graduate students will see their borrowing limit rise to $12,000 from $10,000.

Jim Gilmour, associate financial aid director at the University of Oregon, said that might not seem like much of a benefit but will in fact save students money. That's because more of their debt will be in lower-interest government loans rather than more expensive private loans.

While most of the $12.7 billion cut from the aid program goes back to the treasury, some will get plowed back into student aid. The legislation uses $3.75 billion over the next five years to boost the amount of grant aid going to needy students who earn high grades in math, sciences and certain foreign languages.

Qualifying freshmen could get an additional $750 a year and sophomores an extra $1,300. The aid would be distributed through the need-based Pell Grant program.

But even with some bright spots, higher education supporters say the overall effect of the bill will be to make college more expensive at a time when costs are rising.

"I think that the higher fixed interest rates in the long run will affect students quite adversely because students who are committed to going to school will go and they'll worry about the debt they're accruing later," said Gilmour. "So I think the higher debt will catch up with students."