WASHINGTON - Senator Edward M. Kennedy vowed yesterday to block what he called a ''misguided proposal'' by the Bush administration to end fixed interest rates on federal-student loans and shift as much as $1.3 billion in expected savings to other parts of the budget.
The White House idea, reported over the weekend, would require millions of college students and graduates consolidating their education loans to pay variable rather than fixed interest rates, which would be recalculated every year. Student loans consolidated this year will be repaid at a fixed rate of 5.99 percent.
Kennedy predicted the proposal would mean higher costs for the millions of young Americans who spend years paying off college loans.
''By placing college loans out of reach of more and more students, this misguided proposal heads the country in the wrong direction,'' the Massachusetts Democrat said. ''College loans mean better lives for millions of young Americans, but the Bush administration is slashing education to pay for more and more tax breaks for the wealthiest Americans.
''When it comes to education, it's wrong to rob Peter to pay Paul,'' Kennedy added. ''I will do everything in my power as chairman of the Senate Education Committee to stop this wrongheaded plan in its tracks.''
Kennedy said he would hold a press conference at Northeastern University today to protest the proposed changes and, later this month, hold a hearing on the issue in the Senate Health, Education, Labor, and Pensions Committee. Aides to the senator, who has worked closely with President Bush on elementary and secondary education reforms, said he was ''blindsided'' by this proposal and dismayed that he had not been consulted by the White House.
Administration officials estimate that ending fixed rates on future loan consolidations could result in budget savings of $1.3 billion in the next fiscal year. The federal government subsidizes the loans, making up the difference between prevailing interest rates and the borrowers' fixed rate.
''There are good reasons to look at this from a taxpayers' perspective because taxpayers would have to pay an additional $1.3 billion for the subsidy,'' said Trent Duffy, spokesman for the White House Office of Management and Budget.
The administration is looking for items to cut to make up for budget shortfalls, including an estimated $1.2 billion deficit in Pell grants, a college-aid program for low-income students. GOP lawmakers in the House are considering making the student-loan changes in the $27 billion emergency budget package to fund counterterrorism measures.
Kennedy and other Democrats said yesterday that they will argue that any modifications in the major federal student loan programs should be made in 2003, when Congress takes up the five-year reauthorization of the higher-education programs.
Later this week, Kennedy is expected to release a study on the challenges students will face in coming years meeting college costs. According to the report, states plan to cut $5.5 billion from higher-education budgets over the next two years. According to the American Association of State Colleges and Universities, students at state institutions in California, Massachusetts, and Illinois will face double-digit tuition increases this fall.
If these trends continue, 110,000 students would be unable to afford college next fall, says the report, which was prepared by Senate Democratic staffers.
The Massachusetts Public Interest Research Group, a nonprofit advocacy group, estimated yesterday that a person with a $17,000 consolidated student loan would pay $2,800 more over 10 years and $6,400 more over 20 years with a variable rate versus a fixed rate loan.
Officials with American Student Assistance, the private, nonprofit guarantor of federal student loans in Massachusetts, were unable yesterday to produce a figure for the number of people statewide who are currently paying down student loans. They estimated that as many as 150,000 students in Massachusetts take out student loans each year.
''The bottom line for us is we think this is a bad deal for students,'' said Ellynne Bannon, the group's higher-education specialist. ''It all appears to be a hollow attempt by those in the loan industry to raise their own profit margins at the expense of students.''
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