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.