Buying in

February 26, 2007

The largest high school classes in history - those of 2008 and '09 - are moving toward college, and with tuition still soaring this should be a bonanza for the already burgeoning student-loan business. In January, the new House of Representatives passed a bill that would cut into profits somewhat by requiring a 50 percent reduction in interest rates on new government-guaranteed loans, to be paid for with higher fees and reduced subsidies for the lenders.

In the Senate, Edward M. Kennedy, Democrat of Massachusetts, has introduced a more sweeping measure, which cuts interest rates but also provides more money for the Pell grants that benefit lower-income students.

The lenders, girding for a fight in Congress, were caught flat-footed by President Bush's budget proposal - which goes further than the House bill does and, like the Senate bill, puts more money into direct aid.

Suddenly, the various branches of the government are in competition to open up access to a college education. The lending outfits - the largest of which is SLM Corp., known as Sallie Mae, with $142 billion in outstanding student loans - are going to have to pony up. It won't kill them. They're already devoting more and more of their portfolios to so-called private loans, anyway - that is, loans with no federal guarantee.

(This phenomenon is so recent that no one has a good sense of what its consequences might be; most of the borrowers are still in college. In New York, Attorney General Andrew M. Cuomo is looking into possible collusion on these loans between lenders and colleges, which put together "preferred lender" lists that they distribute to their students.)

In any case, Washington's desire to cut the mandated interest rate on guaranteed loans from 6.8 percent to 3.4 percent, while welcome, is unlikely to have a very far-reaching effect. Students don't start paying off the loans until they've graduated from college; a projected average savings of $20 a month five years into the future won't turn the heads of many high school seniors. The real problem with access to higher education is tuition, not the cost of borrowing.

Pell grants address upfront expenses directly, and the president's proposal to increase their size is worthy. Offering breaks to students who pursue certain occupations is a good idea. But more can be done. Washington, and the states, need to look for other ways to help make college affordable - from the start, without piling a mountain of debt onto tomorrow's students.

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