Student Loan Scam (Cont'd)
DOES CONGRESS really want to save money? Are Republican leaders really committed to balancing the budget? Judging by recent actions of both the House and Senate education committees, the answer is no. As higher-education legislation wends its way through Congress, both committees may be deliberately losing opportunities to make student loans cost taxpayers less and benefit students more.
On the Senate side, the issue concerns loopholes in student loan law that still permit a practice known as "recycling," which allows lenders to keep earning a very high 9.5 percent interest rate from the government on new loans. In his version of the higher-education bill, Rep. John A. Boehner (R-Ohio), chairman of the House Education and the Workforce Committee, has included language designed to stop recycling, which was partially and temporarily halted last year, for good. But Sen. Mike Enzi (R-Wyo.), the new chairman of the Senate Health, Education, Labor and Pensions Committee, has removed similar language. His spokesman says this is because the senator believes the money is put to good use by nonprofit lenders -- some of whom are his constituents. Yet there is no way to monitor what use nonprofits really make of this enormous government subsidy, which comes on top of the subsidy they earned from older loans. Nor is it possible to ensure that these alleged benefits reach everyone.
If senators are concerned about students, they should end double subsidies for lenders and give the money to students directly, in the form of Pell Grants. They could also support legislation backed by Sens. Edward M. Kennedy (D-Mass.) and Patty Murray (D-Wash.) to retrieve some of the hundreds of millions of dollars wasted, completely needlessly, on this scam.
While they're at it, House members should put pressure on Mr. Boehner to release the Government Accountability Office report on student loan costs that he commissioned in January. That report reexamined figures from the Congressional Budget Office and the Office of Management and Budget, both of which showed that federal subsidies for banks that lend to students cost taxpayers 10 times more than direct loans to students. Although the GAO report has been completed, and although some who know the issues believe it supports the CBO and OMB conclusions, Mr. Boehner has decided to keep it under wraps for 30 days. He has a right to do this, despite (or perhaps because of) the fact that Congress is due to make important decisions on federal student loans in the next few weeks.
For too long billions of federal dollars, allegedly designed to aid students, have in fact enriched banks and other lending institutions. The complexity of the financial transactions has made these subsidies hard to uncover and understand. Nevertheless, if Congress is looking to cut wasteful spending so it can aid victims of Hurricane Katrina, fight the war in Iraq and balance the budget, this would be a good place to start.