Will college students save money under the U.S. House's plan to reduce interest rates on student loans?

It depends on who's talking. Some say yes; others disagree.

The House bill, which was approved Wednesday by a vote of 356-71, would gradually cut interest rates on federal student loans from the current rate of 6.8 percent to 3.4 percent by 2011. The bill now moves to the Senate.

"College affordability I think crosses party lines," said Rob Thompson, a spokesman with the North Carolina branch of the U.S. Public Interest Research Group, or PIRG, an advocacy group for the public. "And I think many realize in order to keep up with the world economy that we need to have as many students in college as possible."

A study released last week by PIRG projected that the interest-rate cuts could save an average of $2,200 over the life of a 15-year loan for North Carolina students who begin college in the fall of 2007. Savings range from $2,550 at Duke University to $1,690 at Cabarrus College of Health Sciences.

Students at Wake Forest University would save $2,190, while students at Winston-Salem State University would save $2,120. Students at the N.C. School of the Arts would save $2,390 and students at Salem College would save $2,170, the report said.

The executive director of North Carolina's largest student-loan lender said yesterday that he's not so sure.

"This won't put one dime in a student's pocket that they don't already have," said Steve Brooks, the executive director of the State Education Assistance Authority, the state agency that handles financial aid. Its affiliate, the College Foundation Inc., administers federal loans for about two-thirds of the state's college students.

"I don't think it was a partially well-thought-out bill, but I'm in favor of reducing costs to students," Brooks said

He said that legislators should have first tackled Pell grants, which are given to needy students and don't have to be repaid.

The rate cut would affect subsidized Stafford loans, which are based on financial need. The government pays the interest rate while a student is in college, but the student begins paying it after graduation.

If made law, the interest-rate cut would benefit only students who get such a loan after July 1. It would not reduce interest rates for graduates who are already repaying their loans.

In the 2004-05 school year, 92,000 students in North Carolina paid for school with Stafford loans, according to the PIRG study. After graduation, they have an average of $13,332 in Stafford loan debt.

The burden of debt after graduation can even affect the job choices that students make, Thompson said.

"Teachers, social workers -any of those types of jobs have a social value to them. (But) it's become harder and harder to take jobs that are in the public interest," he said.

There's no guarantee that college students will actually end up paying less to borrow money.

To pay for the cuts, lenders such as the College Foundation will have to pay more in fees. There will also be cuts in lenders' return when students default and the yield the government guarantees to lenders.

Brooks said he isn't yet sure of the cost, but said that the foundation will absorb it without cutting any benefits. "We need to see how it comes out in the end. Who knows what the final details of this might look like."

The rate cut would have to be reauthorized in 2012 or the interest rate would go back up to 6.8 percent.

Rep. Virginia Foxx, R-5th, voted against the bill. She said she believes that the proposed cut won't accomplish anything.

"It takes until 2011 before they are able to get the rate down, and then it only stays down for six months before it jumps back up immediately to 6.8 percent. It's a sham," she said.

Rep. Mel Watt, D-12th, said the fact that it is a temporary reduction should not take away from the bill's goals. "We'll deal with that in time. You have to crawl before you walk, and walk before you run," he said. College "is a good investment, and we need to saddle students with as little debt as possible."

The bill now goes before the Senate, where it faces an uncertain future. It is unlikely that the Senate would pass identical legislation.

• Laura Giovanelli can be reached at 727-7302 or at lgiovanelli@wsjournal.com.

• Journal reporter Mary Shaffrey contributed to this report