The Obama administration and the Democratic-led House are working on a bill that will eliminate student loans through private loan companies like Sallie Mae by July 1.
Politics of loans
The Obama administration and the Democratic-led House are working on a bill that will eliminate student loans through private loan companies like Sallie Mae by July 1.
The bill was approved by the House in September of last year and is currently stalled in the Senate due to the lending industry’s significant influence. The bill would expand the government’s Direct Loan program. Essentially, large private lenders like Sallie Mae and other companies associated with the Federal Family Education Loan program (FFEL) will be dissolved.
The Obama administration believes this will save taxpayers $80 billion over the next 10 years. Half of that will go to the federal Pell Grant program, which provides grants to low-income students. The other half will help community colleges, public school renovation and, best of all, streamline the dreaded Free Application for Federal Student Aid (FAFSA).
The bill comes at an opportune time for Democrats, when banks are under heavy scrutiny for mismanaging government subsidies. According to www.barackobama.com, “Money spent on subsidies for guaranteed loans over the last few years would have been enough to provide every low-income college student an additional $4,000 in grant aid.” Accusations of bribery and “banks providing all-expense-paid trips to college financial aid officers” are also posted. An estimated $15 million per day is wasted on subsidy payments.
It’s not like any of us needed another reason to hate the FFEL. Eighty percent of us will be worrying every month about paying our private lenders back for at least the next 10 years. The Obama administration estimates that taxpayers will save $618 per $10,000 Stafford Loan if the bill passes. Basically, the government is offering me $3,600 if I agree to write a check to them rather than a bank that sounds like a Beverly Hillbilly. Where do I sign?
It’s difficult to find a downside to this arrangement. The current system is confusing and filled with enough acronyms beginning with the letter “F” that I tack on a few of my own every month I see my money disappear from my bank account. Each year, hundreds of thousands of students are priced out of a college education because of increasing tuition and less aid. The cost of attending a public university has increased by 47 percent in the last decade, discouraging many men and women from achieving their dreams. It’s hard to believe that there would be detractors to this bill.
Sallie Mae and other lenders are surprisingly against it, and they make a good argument. Sallie Mae wins numerous awards each year as a leading corporate philanthropist, donating millions to communities and schools across the country. In addition, they urge high school students to attend college and even help them fill out their government loan forms. That’s their charity work. They have a brightly painted bus that travels across the country giving 90-minute motivational speeches to high school students. When the speeches are over, students are invited onto what I like to call the “Cool Bus” and they fill out federal financial aid application forms. Is this even legal? Calling that charity is like winning a Nobel Peace Prize for handing out Big Macs at a fat camp.
Sallie Mae doesn’t make a very convincing argument, but I’ll try.
Currently, the U.S. Department of Education handles the Federal Direct Loan Program, which accounts for about a quarter of federal loan volume. That means the DOE has to be ready to handle a 75 percent increase by July. That’s a total of 15 million student loans under the direct control of a department whose budget was decreased in 2008 from $7 billion to $509 million. Will one floundering department be able to replace 3,000 private lenders?
And don’t forget that Sallie Mae and other lenders are not just faceless corporations. Sallie Mae alone has more than 8,000 employees who will be left facing the worst economic recession since World War II. Maybe the DOE will be hiring come July and they realize they are understaffed and underfunded.
The time has come for radical student loan reform. The need for higher education is greater now than ever and the way students pay for it should reflect that. Maybe the bill won’t pass. Maybe they’ll come up with a better plan. Maybe Democrats and Republicans will reach across the aisle and serve in the people’s best interest, not their own. Whatever the coming months bring, rest assured—it’s going to cost you.
