Today’s New York Times has an editorial about ending a federal student loan program that provides welfare to private finance companies (including banks) even as it rips off college students. Eliminating these financial middlemen will enable the US to save $94 billion over the next decade according to the Congressional Budget Office. The government would instead make direct loans to students.
According to the editorial, “Private companies that reap undeserved profits from the federal student-loan program are gearing up to kill a White House plan that would get them off the dole and redirect the savings to federal scholarships for the needy.” The Times argues, “Congress needs to finally put the taxpayers’ interests first.” Not to mention putting our students first, too!
The editorial states that three-quarters of this country’s college lending is carried out through the Federal Family Education Loan Program. Lenders are paid “handsome subsidies” to make government-guaranteed student loans that are virtually risk-free.
What the editorial does not mention is that these private lenders charge higher interest rates—another subsidy to them at the expense of students. A free lunch for lenders, the program enables them to overcharge most student-borrowers and deprive others the opportunity to go to college.
Responding to conservatives’ false charges that direct lending would “grow government,” the Times states that loans would be handled through colleges, just the way Pell Grants are now, and be serviced and collected by private companies that are already competing (how novel!) for this lucrative business. (It should also eliminate the kickbacks some of these lenders were paying to college financial aid directors the last few years.)
“Forcing service companies to compete permits the government to get the best possible deal for the taxpayers. The service contracts would be periodically re-evaluated, based on how well the companies treated their customers and how successful they were at preventing borrowers from defaulting.”
The current program is another instance of corporate welfare for financial companies facilitated by a Republican party that claims it supports free markets, except when there is an opportunity to use taxpayer dollars to subsidize its campaign contributors. This student loan program is a scam on taxpayers and worse, a scam on student borrowers. It should have been halted when Clinton was president. In today’s economy, it is beyond indefensible. Now, more than ever, students desperately need access to reasonable and timely loans to go to college.
The Times notes that repealing this corporate welfare program will have a tough time in a Congress that is "more interested in pleasing the lending lobby than in looking out for families struggling to educate their children." The Democrats are in the majority now—we must demand they repeal this program. I urge you to call as many Congressional representatives from your home state as you can and call your Senators, too. We need a groundswell. Perhaps tea baggers will join progressives to eliminate pork----here is a perfect opportunity!
My family has been ultra-blessed to have abundant educational opportunities with four generations of college graduates. Right now my 75-year-old mother is going for her 2nd MA (in social justice)! We value education for all who seek it.
Please inundate Congress with calls and send LTEs to your local newspapers. Email your friends and family and ask them to support elimination of this travesty of a loan program and expansion of direct federal student lending. Tell Congress to stop enabling private lenders to scam students and taxpayers!