Only in the past few months has the American public become fully aware of the huge improprieties in the student loan industry. Financial aid officers at various colleges and universities held stock in the very companies they claimed to objectively recommend to student borrowers. The companies that gave such lavish benefits to college employees then mysteriously appeared on preferred lender lists. Depressingly, taxpayers spend billions of dollars a year enabling these companies. Of course this shouldn’t come as a surprise in a Bush administration where taxpayer subsidized corruption—look at Halliburton’s no bid contracts in Iraq—is the norm.
While financial aid officers have been taking trips and receiving kickbacks– at one point, David Charlow of Columbia University owned 7,500 shares worth over $72,000 of the company Student Loan Xpress– ordinary students are left holding the bag. In return for generous government subsidies, lenders are charging students record breaking interest rates. If that weren’t bad enough, rising tuition at America’s colleges have required students to take on ever greater debt. The average student graduates with close to $20,000 in loans to repay. Debt burdens of $40,000 or $50,000 are not uncommon, and there are plenty of students today who leave college with the equivalent of a mortgage to pay off.
One example is Lucia DiPoi, a graduate of Tufts University. In addition to $19,000 in federal loans, DiPoi, is also on the hooks for $65,000 in loans from Sallie Mae. The interest rates on her loans top 13%, and she faces monthly payments of $900. She had to forego her dream to work in an overseas refugee camp because the salary “would have been enough for me but not for Sallie Mae.” Imagining the decades-long struggle DiPoi and other borrowers will have to pay back their loans conjures up images of Sisyphus trying in vain to push that gigantic boulder up the hill.
Fortunately, Congress took a positive step recently, when it voted to cut subsidies to student loan companies by billions of dollars. Congress will use the savings to cut interest rates on student loans, and increase Pell grant funding. This is a welcome development. In the 1990s, the direct loan program saved students money in the form of lower interest loans. Better yet, taxpayer dollars weren’t being used on what has essentially become a form of corporate welfare.
Yet Republicans in Congress object to this overhaul. Representative Howard P. McKeon of California, the ranking Republican on the Education Committee, went so far as to claim that the bill approved on Wednesday “overreaches by creating new entitlement spending for every conceivable constituency in higher education.” Apparently student loan companies are the only constituents that these Republicans have any concern for. After all, students don’t make campaign contributions.
Ironically, Mr. McKeon and his fellow Republican didn’t object to creating new entitlement spending for the student loan companies that have spent so much money lobbying them. Opponents of the bill have also demonstrated a sudden concern about the size of the budget deficit. But before the 2006 midterm elections, the Republican led congress raised scarcely a whisper about the billions spent on Iraq every year, or the supply side tax cuts which helped turn a surplus from the Clinton years into a deficit.
The reasons lobbyists for lending companies gave for opposing the legislation were even more specious. Now Sallie Mae is concerned about students being able to afford college without the usurious loans it provides. Best of all, the company went to great lengths to convince historically black colleges that cuts in the subsidies it receives will somehow make it harder for black students to borrow. Never mind that the money the government saves will be used on Pell grants and low interest loans that black students disproportionately benefit from.
The bill is not perfect—I would like to see some more aid for middle class students struggling with the cost of college. And it faces some hurdles, namely getting President Bush’s signature. But in the meantime, I say three cheers to Congress for its most significant piece of legislation yet.