NASFAA President Dallas Martin, in a May 18, 2006 letter to Members, urges them to not immediately support a proposal to fix a PLUS loan interest rate error in the Deficit Reduction Act (DRA). The DRA, signed into law on Feb. 8, increases the interest rate on FFELP PLUS loans to 8.5% beginning July 1, but does not increase the interest rate on Direct PLUS loans. If this is not corrected, Direct PLUS loans will carry a 7.9% interest rate beginning July 1.
Some individuals are urging schools and NASFAA regional and state associations to contact Congress and push them to pass a "compromise" proposal that would set Direct and FFELP PLUS loans at an 8.3% fixed rate. NASFAA holds the position that all borrowers' loan terms and conditions should be the same, but urges its members to resist endorsing, at this time, the 8.3% fixed interest rate solution for two major reasons.
First, it is too early to commit to a solution that limits flexibility in the legislative process. The House Higher Education Act (HEA) reauthorization bill does not include a provision to fix the error, so any fix will have to be negotiated on the Senate floor and in a conference committee when the House and Senate negotiate their versions of the HEA reauthorization bill. "It is entirely possible, by holding out against such a fix now, that later, the price of our support for the overall bill may result in improvements elsewhere in the legislation," Martin writes. "It would be a shame to lose this opportunity to provide students with improvements in their Title IV assistance programs by looking at only one side of an issue without trying to negotiate for other desirable program enhancements."
Second, the proposed 8.3% fixed rate correction is different than NASFAA's long-time HEA reauthorization position that all student loans should be variable with a 6.8% cap on Stafford Loans and 7.5% cap on PLUS loans. "...we should not give up advocating that interest rates should be as low as possible for all borrowers," Martin writes. "...I urge us all not to be seduced by a 'solution' that marginally reduces FFELP PLUS interest rates while increasing DL PLUS interest rates. If we cannot be successful in getting the Congress to adopt the NASFAA interest rate position, then, certainly, we must seek to convince the Congress to set PLUS interest rates at 7.9%..."
Martin acknowledges that some argue cost considerations are important. But he highlights the recently enacted, multi-billion dollar Academic Competitiveness Grant and SMART Grant programs as proof that Congress can find ways to increase benefits for students. "...Congress can find the offsets if it has the political will to do so," he writes.
Martin concludes his letter by stating, "...I urge you to resist efforts to divide the profession and play one group of Title IV recipients against another group of equally needy students."
Haley Chitty
NASFAA Assistant Director for Communications
By Larry Zaglaniczny
NASFAA Director for Congressional Relations
Posted May 18, 2006 on www.NASFAA.org, the Web Site of the
National Association of Student Financial Aid Administrators (NASFAA).
Copyright 2006. Redistribution to non-NASFAA institutions is prohibited
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