A recent proposal floated by a high-ranking member of the Bush administration to change the program of debt consolidation for college graduates would, if passed into law, likely have significant effects on current undergraduates who depend on financial aid.
UW-Madison's largest aid program, the federal Stafford Loan, currently distributes approximately $95 million to about 17,000 students each year, according to Steve Van Ess, UW-Madison director of the Office of Student Financial Services.
Of the 17,000 students in 2000-'01, 43.2 percent are undergraduates, Van Ess estimated. Every year, roughly 4,000 undergraduate students graduate with debt, he added.
Currently, graduates are allowed to consolidate their loan debt at a fixed, federally subsidized rate. With up to 30 years to pay off the debt, graduates are also not required to provide credit checks. By changing the program and making the interest rate variable rather than fixed, the government would save about $1.3 billion.
Critics of the program say it allows for exploitation by highly paid graduates at the government's expense. With a fixed interest rate, debtors actually could end up paying more than they would have with varying interest rates. For instance, the varying interest rate may be lower than the fixed rate in a given year.
In addition, by lengthening the pay-back time, Van Ess said debtors also could pay more in the end, even though monthly payments are lower.
Mark Ratzburg, a UW-Madison junior who said he is planning on receiving loans for the remainder of his college career, faulted the proposal to change the consolidation program.
\Essentially, it's poor money management,"" Ratzburg said. ""[Bush's] budgetary priorities clearly do not favor education.""
Money saved by restructuring the consolidation program would be reallocated to the Pell Grant fund, another source of aid for higher education which has been experiencing recent budget shortfalls.
According to Rhonda Norsetter, UW-Madison senior special assistant to the chancellor and director of federal relations, the Pell Grant shortfall is a gap between the amount of money needed by students and the amount available to them.
""Consolidation is a program for former students. I would think there would be other ways in looking for ways to help with the Pell Grant shortfall,"" Norsetter said. ""I would hope they could find ways besides [using] other federal student aid programs.""
Currently, graduating students can consolidate their educational loans into a single loan, regardless of differences in loan types and lenders.
The highest interest rate that can be paid under the current program is 8.25 percent.
David Sirota, minority press secretary for the U.S. House of Representatives' Appropriations Committee, said committee Democrats oppose the Bush proposal.
""The administration should not be dealing with a budget problem it created by increasing taxes on the middle class people,"" Sirota said.
Students who already consolidated their loans would not be affected.
Trent Duffy, the spokesperson for Mitchell Daniels Jr., the White House budget director who submitted the proposal, told The New York Times that the proposal was very preliminary and was merely offered as a potential option to reallocate funds within the budget.
