Student loan programs and interest rip offs

I agree completely with Kenneth Bruns that it is essential that we continue the guaranteed student loan program. Ted Kennedy is wrong, plain and simple. We should make sure we end the outrageous interest subsidies paid to companies like Nelnet and Sallie Mae. These subsidies are multi-million dollar rip offs of the taxpaying public and should be illegal. Period! Nelnet and Sallie Mae should be forced to repay any subsidy of this nature that was paid to them over the past two years.

feudi pandola, at 9:05 am EDT on October 10, 2006

It’s disappointing to see Kevin Bruns mischaracterize my op-ed on the Commission on the Future of Higher Education so completely. I’ve never suggested that the federal government’s guaranteed loan program should be eliminated. What I have said is that we need to make the Federal Family Education Loan program more effective by ending the many subsidies and perks in the program that favor lenders, but do nothing for students. When the government’s “guarantee” makes student loans the second most profitable business for banks – right behind credit card profits – something is deeply wrong. We all understand that lenders are in the business to make profits. But they shouldn’t make windfall profits at the expense of students and taxpayers.

In other areas, the government puts these types of services up for a competitive bid. I’m for greater competition in student loans, not just having one student loan program. For example, my Student Aid Reward Act –– one of the central parts of my student loan reform agenda — would promote competition between the FFEL program and the Direct Loan program by requiring the Secretary of Education to determine which loan program is more efficient. Then, it would encourage colleges to choose the less expensive of the two programs by rewarding schools that do so with additional Pell Grant scholarship funds. Over the next 10 years, the STAR Act would generate $13 billion in new Pell Grants – at no cost to the taxpayer. Obviously, the STAR Act is about making sure both loan programs are as efficient as possible. So Bruns’comments are just off base.

So is his assertion challenging the fact that the Direct Loan program is less expensive than the FFEL program. President Bush’s own 2007 budget states that student loans made through the FFEL program cost $6 more for every $100 lent than the same loans made through the Direct Loan program. Moreover, the non-partisan Congressional Budget Office has estimated that the cost of loans made through the FFEL program will be 15 cents per dollar in 2006 – while the Direct Loan program will return a 2 cent per dollar profit. Meanwhile, the study Bruns cites to make his flawed argument was produced by his own company – hardly an unbiased source.

Finally, I did not say – as Bruns asserts – that the guaranteed loan program encourages students to default on their loans. Rather, I pointed out that under the current student loan system, the Department of Education pays lenders and guarantors more for collecting on defaulted student loans than for keeping borrowers in good standing. To me, that’s just plain backwards. That’s why I support the model used by American Student Assistance – the designated student loan guarantor in Massachusetts – which has a special arrangement with the Department of Education in which it receives a higher fee for keeping borrowers’ accounts healthy.

The stakes are high. For many families, today’s spiraling college costs present new barriers to college access that can mean that their children can’t afford college at all. We owe it to them to get it right and do all we can to make every federal education dollar work for them. That’s why I look forward to working with Secretary Spellings as the ideas set forth by her Commission on the Future of Higher Education move ahead. Working together, we can come up with real solutions that give a new generation of Americans a fair shot at the American Dream.

Edward M. Kennedy, Senator at United States Senate, at 3:43 pm EDT on October 10, 2006

Facts rule

Readers will notice that Senator Kennedy backs up his comment with facts, while loan-industry spokesman Bruns offers only generalities and innuendos.

Alison, freelance journalist, at 6:15 am EDT on October 14, 2006