It is deals like this that make us wonder who has been minding Uncle Sam's shop. Apparently, under current law, the feds are paying a fixed interest rate of 9.5 percent on some student loans regardless of what the current market is offering. This policy was originally put in place in the early 1980s??when market interest rates were trending as high as 20%??to allow for a reasonable rate of return on student loans. As far back as 1993, as the trend in interest rates returned toward earth, Congress has been trying to fix this deal. Some fixes were made, but lawmakers were forced to let lenders who were already in the loop make a "gradual transition" to the market rate in order to pay off their underlying bonds. In some cases, the phase out was scheduled to last an additional 20 years. Ten years later, some companies aren't just "phasing out" their loans but have actually expanded the dollar volume of loans and reaped hundreds of millions in windfall profits at the expense of taxpayers.
Two smart thinking legislators, Senator Judd Gregg (R-New Hampshire) and Representative John Boehner (R-Ohio) have just gotten a bill through Congress that puts an end to this sweet deal for the next year, freeing up $250 million in estimated savings over. This money will then be shifted over to increase funding for a government program that grants sizable loan forgiveness to teachers working in low-income schools.
Current loan forgiveness programs only eliminate up to $5,000 in loans after a teacher works five years in qualifying schools, hardly enough money to keep anyone anywhere. The new, improved program would boost that amount to $17,500 for math, science and special education teachers in those schools.
Some argue that too few teachers will qualify. For instance, the loan must have been granted after 1998. Supporters argue that these higher education funds need to be used more efficiently, and how better to do that than by giving districts a significant carrot for attracting and retaining teachers in high-need schools. Regardless, the bill is waiting for the (expected) scratch of the pen by President Bush.