During the Q&A session after President Bush’s speech at Kansas State University, a student asked him, “Recently, $12.7 billion was cut from education, and I was just wondering, you know, how is that supposed to help our futures?”

Bush answered, “Actually, I think what we did was reform the student loan program. We are not cutting money out of it.”

The LA Times followed up on the student’s question with this report:

Loans to students carry market-driven rates, now 4.7% while students are in school and 5.3% once they graduate. Under current law, both rates will go to 6.8% as of July; the lending institutions will get to keep, as profit, any difference between the 6.8% legislated rate and the market-driven rate.
Under a spending-cut bill that is one final House vote and a presidential signature away from enactment, the rate would also be 6.8%.
But unlike current law, the difference between the legislated rate for student loans and the market-driven rate would go to the government to reduce the deficit, instead of to the lending institutions as profit.
Bush apparently was alluding to this formula in his reference to ensuring that the system “works better.”

But the LA Times fails to tell us why the rate is fixed at 6.8 percent. The Gainesville Sun explained it in this report last Sunday:

College students are always hunting for a deal.
So it was a high-five moment when student groups negotiated with lenders and members of Congress to fix interest on student loans at 6.8 percent beginning this July. That was four years ago, when variable interest rates were around 8 percent.
They figured millions of student borrowers would save big bucks. But after that legislation was signed in 2002, interest rates plunged. Now students are looking at a 2-point hike this summer on new loans compared to the current 4.7 percent rate for borrowers still in school.

In other words, the student groups themselves created this mess when they talked Congress into artificially lowering the interest rate on government-backed student loans. Although some on the left are eager to portray this as conservative cold-heartedness, this is something no true conservative would have backed.

Heritage Foundation senior policy analyst Kirk Johnson said that some parts of the student-loan reform in the deficit-reduction bill are good ideas, but not the fixed 6.8-percent rate. “Conservatives bristle at the idea of government trying to tell the marketplace what to do in a heavy handed way,” Johnson told me this afternoon. “Price-fixing in the student loan market is something the government should stay out of. This proposal is price-fixing at its worst.”

Even so, Johnson is skeptical of claims that students would be seriously hurt by the reforms. “It’s highly unlikely that any of these proposals will affect needy students’ ability to get loans. The idea that students won’t have access to student loans even with these technical corrections is simply not true.”