(Washington) “The heated Senate debate yesterday also focused on complex student loan changes that would save $12.7 billion over five years. Under the provision, student loan interest rates would be locked in at 6.8 percent and could not be refinanced as commercial rates fluctuate. Private lenders would continue to be able to borrow money at a rate guaranteed to generate a profit.

Currently, any time the student loan interest rate is higher than the bank’s guaranteed rate, the bank gets to keep the extra profit. Under the budget bill, that windfall would have to be returned to the federal government, a change that should yield $18 billion in savings. The change has strong Democratic advocates, including Sen. Edward M. Kennedy (Mass.).

But student groups, higher-education advocates and their allies in Congress say much more of those savings should go toward expanding higher-education assistance or lowering student loan rates, not deficit reduction. ‘They could give students a lower interest rate, but their choice is to keep interest rates high,’ said Luke Swarthout of the U.S. Public Interest Research Group. ‘They’re asking students to pay for tax cuts.'” More…