Students Over Banks...Pass SAFRA!

The Student Aid and Fiscal Responsibility Act (SAFRA) is expected to be introduced in the House today. A historic bill, it will invest billions in student aid and higher education, while ending subsidies to banks (See Bob Brandon’s post outlining the bill here [1]). But private lenders are determined to keep their profits by killing the bill, thus denying students the aid they need. So contact Congress [2] to pass H.R. 3221, placing Students over Banks!

The Federal Family Education Loan program (FFEL) was established by the federal government over thirty years ago to encourage (via subsidies) private lending in the once small student loan market. Fast-forward to today, SAFRA aims to end costly subsidies in a sector that has matured, offering all loans under Federal Direct Lending.

Worried about profits, America’s Student Loan Providers have come out against [3] the bill,

“The student loan program changes are not only misguided, but inconsistent with consumer choice and competition. By having the government take over all federal student loan originations, it would involve one of the largest expansions of a government program in recent memory. Within a decade the Federal Direct Loan Program would be a trillion dollar operation, making it one of the biggest banks in the world. It would ultimately have responsibility for tens of millions of borrowers.”

Where to begin with the lies? First, all lenders of FFEL are required to lend at interest rates determined by the government –competition therefore does not exist because banks can’t set any terms. Secondly, the government already is responsible for all loans and borrowers. Banks lend nearly risk-free under FFEL, with the government guaranteeing them a rate of return and covering borrower defaults. In fact, the federal tab picking up defaults is an estimated [4]$9 billion this year alone. Lastly, a switch to Direct Lending does not balloon the costs to the government –it’s the opposite. Ending FFEL will save the government $87 billion [5]over the next decade by ending subsidies, with SAFRA paying down the deficit by $10 billion.

Even the loan industry’s last-ditch proposal to service government loans under Direct Lending proves nonsensical. The latest CBO confirms [5] the past week that private servicing will cost $17 billion MORE than a complete switch to Direct Lending.

Republicans of course are looking to maintain the status quo for their banker friends. The top House Republican on the Education and Labor Committee, Rep. John Kline (R-MN), warned [6] in an op-ed Monday,

“It’s time to hit the brakes. Rather than frantically rushing to enact a proposal before the costs and consequences are fully understood, Democrats should join Republicans in our plan to commission a comprehensive study about the future of student lending. We can extend a program that works today — in the process, putting billions toward deficit reduction — while finding a long-term solution that will benefit students, schools and taxpayers alike.”

I’d say students have waited long enough for critical investments in student aid and higher education; that is why passing SAFRA is so important. The choice could not be any clearer, but watch as the bank lobby and their supporters in Congress move against the bill. Make your voice heard now, call your House representative [2] and tell them to support H.R. 3221, placing Students over Banks!