Conservatives Want the Status Quo for Student Loans
November 20, 2009 - 1:45am ET
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Representative John Kline (R-MN) and Senator Mike Enzi (R-WY) introduced legislation this week that keeps our broken student loan system in status quo, with corrupt private lenders and federal bank subsidies worth billions. This is a move directly against the Democrat-backed Student Aid and Fiscal Responsibility Act (SAFRA) that ends the practice and moves to federal direct lending, thus avoiding the private sector middlemen.
The Republican legislation does nothing to aid students, but sure does resuscitate the private loan industry. The proposal extends the existing Ensuring Continued Access to Student Loans Act (ECASLA) that is the lifeline for the federally-guaranteed, subsidized lender program. ECASLA is set to expire in July 2010, so many in Congress want to make sure lenders’ profits stay fresh.
Proponents of the bill claim that a move to direct lending, particularly during the credit crisis, will jeopardize students ability to gain access to loans they need and that schools are unprepared for the transition –but this is bunk. Deputy Under secretary of Education, Robert Shireman, stated that it takes colleges and universities between three weeks to four months for a complete switch over to direct lending. And even the once hesitant National Association of Student Financial Aid Administrators now recommends that all schools not wait, and prepare to switchover without delay.
Funny enough, Republicans hail their new bill “bipartisan” too, thanks to co-sponsor, and lone Democrat, Senator Ben Nelson (NE). Nelson’s support is no surprise though; his top contributor is the student loan company, Nelnet Inc. He is not alone however, a number of Senate Democrats have expressed that they are on the fence about ending lender subsidies.
Just a signal of who stands to benefit from the Republican bill, private loan companies’ stocks increased nicely on Wednesday when news broke of the proposal. Sallie Mae even responded that, “a delay gives Congress ample time to fully consider how best to reform the student loan program." But also enough time for Sallie Mae and other lenders to ramp up their lobbying to kill SAFRA and protect their profits. In fact, Sallie Mae spent over $3 million lobbying Congress this year so far, and with health care (understandably) clogging the legislative queue, lenders have even more time to scheme.
The Student Aid Bill Must Pass
The alternative bill, the Student Aid and Fiscal Responsibility Act (SAFRA) already passed the House and will actually benefit students, not banks, saving $87 billion by ending subsidies, directing much of the savings in the form of increased Pell Grants, investments to community colleges and strengthening college access and completion programs –and those are just some of the bill’s benefits. SAFRA is truly a game changer for education. The Republicans’ idea? The same old games.
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