The Obama administration has proposed a plan to end the subsidized loan program.
The administration said this is an attempt to pass on billions of dollars in bank profits to needy students. The plan is the main money-saving component of Obama’s education agenda, which includes a comprehensive refurbishing of financial aid programs.
The Congressional Budget Office said redirecting loans made by private banks with direct lending from the government would save $94 billion over the next decade.
Obama would use the money saved to expand Pell grants for the poorest students.
The proposal has set fire to one of the most restless policy fights of the year so far. Democrats are divided amongst themselves concerning the issue, while Republicans are avidly against it.
Many Republicans say the plan is proof that Obama is trying to vastly expand government.
Because the proposal would make spending on Pell grants mandatory and limit congressional control, powerful appropriators are fighting it tooth and nail.
The private loan industry, which was rescued by a government bailout last year, has begun forcefully lobbying to save the subsidized loan program that has generated large profits with little risk.
Lenders are emphasizing the jobs they provide, which might be lost if Obama’s plan is passed.
Even some Democrats are wary of the proposed plan.
‘The president’s proposal could be detrimental to thousands of employees who serve in the current student loan industry throughout this country, 650 of which are located in Panama City, Fla.,’ Rep. Allen Boyd (D- Fla.) said in a floor speech.
Though it could be argued that the role of private lenders is expendable, these private lenders employ thousands of American workers.
Sallie Mae Chief Executive Albert Lord claimed the industry can cut costs to make up for the funds.
‘We can either meet or beat the budget savings that are in the President’s budget with the exact same system that we have got working now with maybe a few tweaks,’ Lord said in an April 13 town hall meeting in Wilkes-Barre, Pa., where Sallie Mae is headquartered.
Lord’s tenure at the helm saw Sallie Mae switch from a semi-efficient means of funding American higher education to the equivalent of a loan shark.
Despite Lord’s remarks in the meeting, Sallie Mae’s official stance is somewhat different.
‘To be clear, there are those who are fighting to preserve the historic financing structure for federal student loans,’ Martha Holler, a spokesperson for Sallie Mae, said in an interview.
‘Sallie Mae is not among them. In fact, we support constructive alternatives that would generate a similar level of taxpayer savings to achieve the administration’s important goals,’ Holler said.
If Obama’s plan is passed, however, the possibility of making a profit off student loans seems bleak, which is basically the point. Lots of people think no one should make a profit off loaning money to students.
Allen Collinge of the Student Loan Justice Web site blames Sallie Mae and general academia for the inflated cost of tuition.
Collinge claims banks who handle student loans have lobbied Congress to increase the lending caps and have had basic consumer protections removed from students.’
Collinge also claims student lending has become quite a lucrative business.
SLJC suggests pressure be put on universities looking for capital so they don’t raise tuition.
Bankers are not in a very powerful or popular position right now. Banks are on the begging-end of the issue.
Banks are very willing to work with the government on this issue because student lending is a business where they can’t lose money.
Banks seems to have the ‘If it ain’t broke, why fix it’ mentality, despite the current global financial straits.
The question is, why do we subsidize banks to give loans to college students? Why don’t we just let the students apply to the government?
It boils down to a convenience issue, but Democrats have made it clear that the process of applying for Pell grants is routine.
No one has problems anymore – students either get Pell grant money or they don’t. There isn’t any reason for private banks to be involved.
Before choosing a major, students need to make sure jobs in their field of study exists before applying for student loans. Otherwise, they will not be able to pay back the loans.
The banking industry claims to be so inextricable from the capital infrastructure as to be safe from the consequences of their own failure and wrongdoing. Perhaps a change would do us good.
Matthew Keever is a communication junior and may be reached at [email protected].
