The Loophole's Loophole
EVERY ONCE in a while, Congress works the way it is supposed to work. Just before the July 4 recess, an unusually decisive House voted 224 to 178 in favor of an amendment to a spending bill proposed by Rep. Chris Van Hollen (D-Md.) to close a loophole in student loan laws that is costing taxpayers about a billion dollars a year. If that sounds familiar, it should: In principle, Congress shut down this scam -- which allows lenders to use an outdated law that guaranteed them 9.5 percent interest rates -- last year. But in practice, payments to student loan companies holding 9.5 percent interest loans have continued to expand, thanks to a process known as "recycling," which keeps the old interest rate in play. According to StudentLoanWatch.org, http:/
Faced with the prospect of the bill's defeat in the Senate, Rep. John A. Boehner (R-Ohio), chairman of the House Education Committee, has reversed his opposition to the amendment. In conjunction with Education Secretary Margaret Spellings, he has announced that he will fully support an end to the scam and the "recycling" that prolonged it. Originally, Mr. Boehner had objected to the amendment on the grounds that ending "recycling" would hurt nonprofit lenders. This struck us as beside the point: Student loan law should not allow any institution, whether or not it is for-profit, to accrue financial gains that are unwarranted. Democrats in the House and Senate who organized the biparti-
san votes in favor of change were right to do so.
The loophole isn't over until it's over, however. Education Committee members in both the House and the Senate will doubtless be under pressure from banks and other lenders who make money from these loans. They should stick to their guns: In the course of reauthorizing the Higher Education Act -- which the House has begun -- Congress will soon have an opportunity to ensure that this practice ends for good. Student loan money should be for students, not for banks.