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Monday, December 12, 2005

No Lender Left Behind

Let's transfer a bunch of money from the government to lenders as part of a student loan program and when evidence of something potentially better for students comes along that might reduce these transfers, hide it:

Robbing Joe College to Pay Sallie Mae, by Anya Kamenetz, commentary, NY Times: ... The federal student aid system fails students, but it does a great job of delivering profits to private lenders... When it created the loan program, Congress assumed that banks would not lend to young people without extensive guarantees and incentives. So they guaranteed a certain rate of return on student loans, made up their losses on defaulters, created a secondary market for student loans by chartering ... Sallie Mae ... Student lending has grown into a highly profitable and low-default market, yet these special privileges persist. Sallie Mae, the private company that makes, buys and sells the most student loans, boasted the second-highest return on revenue in the 2005 Fortune 500.

Sallie Mae also happens to be the largest contributor, by far, to members of the House Education Committee. ...[T]he committee chairman alone, John Boehner of Ohio, received $172,000 ... in 2003 and 2004. It's thus no surprise that lawmakers are apt to protect lenders and not students. ...But ... why not cut off subsidies to banks and give that money to needy students? One way to do that is to expand a program ... in which the government makes loans directly. A recent Government Accountability Office report showed that direct loans cost the government one-fifth as much ... Mr. Boehner, however, kept the report under wraps for 30 days, and it was released just hours before the House committee vote. ... [T]he aid program could save $60 billion over the next decade by switching entirely to direct loans - enough for almost a 50 percent increase in Pell Grant money.

A group of students has also proposed a National Tuition Endowment, which would preserve an estimated $30 billion for need-based grants by cutting loan subsidies and finally closing an infamous loophole that has lenders collecting 9.5 percent interest from the government on certain loans. Yet Mr. Boehner is heading in a different direction. He told an audience of commercial student lenders earlier this month that "I've got enough rabbits up my sleeve" to make them happier with the bill. ...

There was a recent rule change allowing student loans to be collected from Social Security payments. If personal irresponsibility causes an individual to default on a student loan, and if fiscal irresponsibility causes the government to renege and reduce Social Security, health care, or other obligations by the same amount, what then? Shall we just call it even? More seriously, as the article notes in a part that was cut, a recent bill cut 14 billion from the student loan program over the next six years. The justification given was that it came from corporate subsidies, not loans. Two things, first, that shows how large the excess profits to lenders have been, and second, why not use the money gleaned from the rule change to increase the amount available for grants and loans? It's needed.

    Posted by on Monday, December 12, 2005 at 12:09 AM in Economics, Universities | Permalink  TrackBack (0)  Comments (5)


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