Time to Reconcile Student Loan Reform

If some members of Congress are going to stand with banks, instead of students, then why not pass student loan reform through reconciliation? Just like Americans and health care reform –students need relief now. It is time for Congress to act on behalf of students, and not banks.

In just the past few days, a tidal wave of conservative lies has crashed onshore to try and stop student loan reform once and for all. Big lenders such as Sallie Mae are armed, spending millions to woo members of Congress to kill reform (known as the Student Aid and Fiscal Responsibility Act) that ends bank subsidies and invests in students. This reform would save taxpayers over $80 billion by ending the Federal Family Education Loan program (thus cutting out banks), with a move to federal Direct Lending of student loans, while also redirecting most of the savings to Pell Grants and community colleges. Learn more about the bill here.

But in a last ditch effort to shape public opinion, conservatives have launched attacks against reform with blatant lies. Take for instance the dishonest, inaccurate fear-mongering spewed by Tennessee Senator Lamar Alexander’s Sunday op-ed in the Washington Post that completely distorts reality about the legislation:

Myth:
“The Education Department will borrow money at 2.8 percent from the Treasury, lend it to you at 6.8 percent and spend the difference on new programs. So you'll work longer to pay off your student loan to help pay for someone else's education”

Fact:
Student loan reform would invest $40 billion in Pell Grants to help students by increasing the maximum Pell Grant, indexing it to inflation and expanding Pell Grant eligibility for thousands of students.

The senator’s comments make it appear as if interest rates will be going up with reform –but in reality they will be fixed at the current rate of 6.8%.

The truth is students will be paying more not because of reform, but because of conservative policies that stand in the way. Instead of supporting stimulus measures that would ease cash-strapped state budgets and avoid painful cuts to higher education, conservatives have said deal with. Meanwhile, many state universities have or will raise tuition by upwards of 30 percent for the next academic year –on top of the already 60 percent increase of tuition since 2000.

Myth:
“Today, roughly 2,000 lenders offer government-backed student loans on more than 4,000 campuses. One lender, Edsouth, offers Tennessee students college and career counselors, financial-aid training, and college-admissions assistance; performs hundreds of presentations at Tennessee schools; and works with 12,000 Tennessee students to improve their understanding of the college-admissions and financial-aid process.”

Fact: Private lenders’ have a dodgy record, and been more hurtful to students, not helpful. Sallie Mae, the heavyweight of the student loan industry was found in the crosshairs of a ‘pay to play’ scandal with numerous arrangements that benefited schools and lenders at the expense of students. Investigators say lenders have provided all-expense-paid trips to exotic locations for college financial aid officers who then directed students to the lenders.

While more recently, a big scandal involving Nelnet, JPMorgan and Citigroup has come out, as the federal government has sued the companies for alleged fraud worth nearly hundreds of millions for making false claims and illegally recruiting more student borrowers.

Myth:
“Gone will be the days when students and their colleges picked the lender that best fit their needs; instead, a federal bureaucrat will make that choice for every student in America based on still-unclear guidelines”

Fact: Private lenders under the current federal program must provide the same loan condition–the interest rates, terms of lending, etc. are all fixed by the Department of Education (found here). The only difference students will find is greater honesty, as financial administrators will no longer have “preferred” lender lists to coax students towards one private lender or another.

And the worse myth of them all:
"Beware: Your federal government is overcharging you so your representative can take credit for starting new government programs. Enjoy the extra hours you work to pay off your student loan."

Fact: The prior statement should really read, “Beware: Student loan companies are overcharging all of us to take their profits from a government program. Enjoy the extra hours you work to pay off your student loan because of bank subsidies and conservative policy.”

The student loan industry is a complete joke. Billions in unnecessary bank subsidies, while the federal government is on the hook for 97% of the value of their loans, be it in default or good standing. In fact, the total defaulted student loan portfolio for the Department of Education –a good portion of which were dumped back to the government when private lenders no longer wanted them—stands at nearly $50 billion.

With too many in Congress allying with banks to defeat student loan reform, it will be extremely difficult to pass a stand alone bill in the Senate. This is why I urge Congress to attach student loan reform to the health care reconciliation bill. Make your voice heard here, tell your representative to put students over banks!

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future