A bill slated to reach a vote later this week by the House of Representatives may increase the cost of higher education for many students in the federal direct-lending program. The legislation, which was approved last week in subcommittee, would prevent students from receiving rebates on the origination fees that they paid to receive the direct loans.
The bill, HR-609, focuses on direct lending schools. The University will not be significantly affected because it has adopted the Federal Family Education Loan Program (FFELP), according to Director of Student Financial Services Yvonne Hubbard.
For schools under the direct-lending program, the origination fee for the loan will be reduced from 4 percent to 1 percent over the course of four years.
However, due to the schedule of direct loans, HR-609 calls for the increase of the current rate of origination from 1.5 percent to 3 percent by next year before dropping, according to National Direct Loan Coalition chair Eileen O'Leary.
The legislation also prohibits the Secretary of Education from reducing fees for direct loan students. In contrast, schools under the FFELP program can have the fees paid for by the lender.
Proponents of the bill say they are "trying to level the playing field" between both loan programs and are against giving a federally-backed advantage to direct-loan borrowers, according to the Chronicle of Higher Education.
"It seems kind of mean spirited to treat students in the direct loan program worse by making them pay fees that the other students don't have to pay," O'Leary said.
Another aspect of the bill states that students cannot consolidate their loans if they want to have income contingent repayment. Income contingent repayment plans allow students who wish to enter into low-income jobs such as public criminal defense or public education to stretch out their payment plans over a longer period of time.
"It will discourage students from seeking low paying but highly valuable jobs," O'Leary said.
She added that direct loans are cheaper than FFELP loans by 10 percent.
Some universities will see a drop in low-income students enrolling, according to Daniel Davenport, a member of the National Student Direct Loan Coalition.
According to Hubbard, the University switched from Direct Lending to the FFELP program two years ago. Approximately 25 percent of undergraduate students are receiving some form of a loan.
Although both lending programs charge an origination fee, Hubbard disagrees with the idea.
"I think it's absurd in my opinion for a student to have to pay for the privilege to borrow money," Hubbard said.
University students pay a three percent origination fee which is deducted from their balance when they start repayment.
Although this bill will not have a direct impact on University students, it can harm the competition which could impact the FFELP program, Hubbard said.
"The FFELP program has only become as good because of the competition from the direct loan program," Hubbard said.
Despite the controversy over this issue, Hubbard, Davenport, and O'Leary all agree that this bill will probably not discourage most students from attending higher educational institutions.
The U.S. Department of Education did not return requests for comment.
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