Interest rates on student loans will be significantly reduced.

President George W. Bush signed the College Cost Reduction and Access Act on Sept. 27, which reduces interest rates on student loans until 2012.

Jone Zieren, director for financial aid, said the act would only help Eastern’s student loan office because the federal direct program receives additional money.

Eastern operates through the federal direct program, which is operated by the federal government. The only other program in the student loan industry is the Federal Stafford Loan Program, which is operated by private lenders.

The act will cut almost $20 billion dollars in government subsides to the private loan lenders. It will also add money to the Pell Grant, which is a federal grant for low-income students attending college.

The Daily Eastern News spoke with U.S. Reps. Rahm Emanuel, Tim Walz and Zack Space via teleconference about the act.

“All of us made a priority in the last election to help middle class families, and other families who need help, to want their kids go to college and who need the resources to help their kids go to college,” Emanuel said.

Emanuel, D-Ill., said this act is the largest increase in college education since the GI Bill in 1944.

Space, D-Ohio, said over the course of the next five years Pell Grants will increase by $1,400 a year. Pell Grants are currently around $4,050 and will increase to $5,400 by 2012.

Walz, D-Minn., said the Republican-controlled Congress ignored making investments in the student loan industry that would make it easier for middle class families to afford college expenses.

“They shifted the ability to get loans through the private sector that continues to profit of the backs of our students,” Rep. Walz said.

Critics of this act think by cutting subsides to private lenders, private lenders will cut borrower benefits to students.

“It’s all a part of the scenario that we are going to be watching,” said Bill Bushaw, director for finical aid at Western Illinois University. “Whether or not the lender is squeezed so far that they have to cut upfront benefits to students.”

Western Illinois’ student loans office also participates in the Federal Stafford Loan Program.

Bushaw said the Stafford programs have been able to cover the origination fee and the default fee for students.

The origination fee was originally a way for the federal government to save money when funding the Stafford loan programs, but the fee was eventually assessed and passed on to students.

The default fee is an insurance fee against loans going into default.

If private lenders decide to cut these benefits to students, the student will have to pay more for student loans, Bushaw said.

Emanuel said the motivation to cut subsides to the private sector was fueled by the private sector making a huge profit at the expense of taxpayers and students.

He said private lenders were purchasing loans at market value and selling them above market value.

“They were just profiting off the difference, which we viewed as we should not be guaranteeing their profit,” Emanuel said. “We should be in the business of easing your ability to get an education.”

He added he is unsure what the next step for private lenders is, but is assured they are staying in business because it is still lucrative.

All this should not affect Eastern, Zieren said.

“Cuts being made to student loans is affecting lenders, but not affecting federal direct lenders and (therefore) not affecting Eastern,” she said.

Bushaw said this act is also a short-term benefit to students.

“Students aren’t able to see any benefit from (the act) until next year as far as interest rates are concerned,” he said. “Then it is going to be phased in over several years, and then after that, it automatically bumps up to the current interest rates.”

By 2008-2009, interest rates on student loans will decrease by .8 percent. The interest rate is currently at 6.8 percent and will drop to 3.4 percent by 2011-2012, but will increase to 6.8 percent after 2012.

Emanuel said Congress intends not to stop with this act.

“We are going to keep making college education affordable, and the issue of cost is not one that prohibits (students) from going to college,” he said.

Critics of the act also claim this legislation will phase out private lenders.

Bushaw has been involved in student loans before the federal direct program was developed. He said competition is always good and has made both programs better.

“It helps students, particularly, in the delivery of funds to students in a timely basis,” Bushaw said. “Efficiencies have developed that have made the process, overall, less cumbersome for one to go through.”

He added smaller private lenders would be driven from the market with this act in affect, leaving only larger private lenders in the student loan industry.

Space said this act is smart legislation designed to help individuals and society.

Bushaw said this act could change how the private sector does business.

“I think it will really tell what is going to happen in the section that handles federal Stafford loans, how much they will be squeezed and if they can stay competitive,” Bushaw said.