In an effort to lower federal spending, the U.S. House of Representatives recently passed a budget resolution cutting $10 billion over seven years from the student loan program, threatening the in-school interest exemption of many students.
Democrats are in favor of in-school interest exemptions while some Republican members argue the interest subsidy is an unnecessary program in which people without college degrees have to pay taxes to support people who do have degrees, said Kevin Boyer, executive director of the National Association of Graduate Professional Students.
"This is an issue that will seriously affect the lives of students, and we strongly encourage the students to write to their senators and congressmen to oppose the cut," Director of Financial Aid Virginia Hazen said.
The Financial Aid Office has been active in getting the students to write to their representatives to protest the proposed cuts. Additionally, College officials have met with New Hampshire representatives, Hazen said.
"The proposed changes/cuts to the federal loan programs are not expected to affect the College's policy of remaining need-blind," Vice President and Treasurer of the College Lyn Hutton wrote in an electronic-mail message.
"We are now doing everything we can to urge Congress to keep the in-school interest exemption and hoping Congress will see that eliminating the interest exemption is de-investing in the future of our nation's education," Boyer said.
In a July 27 press conference in Washington D.C., Republican leaders proposed an alternative to eliminating the interest exemption.
Representatives Bill Goodling (R-Pa.), Buck McKeon (R-Calif.), and John Kasich (R-Ohio) said according to figures released by the Congressional Budget Office, eliminating the Federal Direct Student Loan Program could raise $1.5 billion of the $3 billion needed to keep the in-school interest subsidy.
At the conference, Goodling also said the other $1.5 billion needed to keep the interest exemption can be obtained by "reducing federal subsidies to the private sector loan industry."
Republicans contend that by eliminating the Direct Program, the banks operating under the Family Education Loan Program could reduce the government's expenditures in the private sector loan industry by subsidizing the loan industry with the increased revenue of interest obtained from student loans, Boyer said.
The Federal Direct Student Loan Program differs from the Federal Family Education Loan Program because students apply to their college for the loan in the Direct Loan Program while the loan application is processed through a bank in the Family Education Loan Program, according to Boyer.
Democrats argue that replacing the Family Education Loan Program with the Direct Loan Program will save the government billions of dollars by eliminating the fees the government pays to the banks.
"The Republicans are forcing the Democrats to choose between eliminating interest exemption and replacing [Direct Program] with [Family Education Program], and the students are caught in the middle," Boyer said.
Boyer issued a statement urging Congress to preserve the interest exemption.
"For months, the Association and thousands of graduate/professional students have been telling Congress that the interest exemption is crucial to the future health of our nation's graduate education programs and the students who study in them," Boyer said in his statement.
Dartmouth currently does not participate in the Direct Lending Program, Hazen said.
"I'm not an advocate for either program, " she said. "But the Congressional Budget Office recently issued an estimate which shows that the [Direct Lending Program] actually costs more than the [Family Education Loan] Program."
"There is talk about the Republicans capping the program at 40 percent of the current [Direct Lending Program and Family Education Loan Program] volume," Hazen said.
Hazen said she thinks it is a good idea to cap the Direct Loan Program temporarily until the government can determine which program is more cost effective.
"The Direct Program has expanded extremely fast and there is no proof to show that the Department of Education can actually effectively administer it without the banks," Hazen said.
"There needs to be a level playing field while the government evaluates which of the two programs is more cost-effective," she said.
If the interest exemption is eliminated only with regard to the graduate years, the loan size will increase by 33 percent, according to Hazen. If the interest exemption is eliminated completely, a student's loan size will increase by 50 percent by the time the student is finished with his or her studies, she said.
If the Federal Direct Loan Program is capped, Hazen said she thinks the House and Senate will have to come up with savings from other sources.
"If they decide to cut the funds for Supplemental Education Opportunity Grant, the College will be hard-put to come up with approximately a million dollars of funds," she said.
Less than 20 percent of College funds are used for student loans, according to Hazen.
"The College's funds are extremely limited, and it decreases from year to year," she said. "Most of the funds are used for scholarships."
"If the program is capped or eliminated, it could have serious negative implications for needy students," she added.
Hazen said there is also talk about eliminating the federal capital contribution to the Perkins Loan program.
"If this happens, Dartmouth would lose about $735,000 in low- interest loan funds," Hazen wrote in an electronic-mail message.
