To most of us, the phrase "student loans" does not conjure an image of wealth or riches. Most of us think a student loan is something that enables someone to live on canned soup and crackers for four years while holding down a hamburger-flipping job and pulling all-nighters in the library. A student loan is for students, and most students aren't rich.
To some people, however, a student loan isn't a burden. It's a get-rich-quick scheme. If that sounds surprising, ponder this: Thanks to loopholes in the student loan system, financial institutions that lend to students will earn an unprecedented $1 billion over the next year. None of that money will go to students. All of it will go to the lenders, and all of it will come from you, the American taxpayer. It would be a scandal -- if, that is, anybody were upset about it.
Technically, it is just about possible to explain how this state of affairs came about. About 18 months ago, a few lenders found what they thought might be a loophole in a 1993 law that was supposed to phase out a particular kind of student loan, one that guaranteed loan providers an interest rate of 9.5 percent, much too high in an era of 3.5 percent interest rates. By mixing and matching loans, the banks thought they could make the amount of money earning 9.5 percent grow instead of shrink. Tentatively, they started sending invoices to the Department of Education. The Department of Education paid them. So they started sending more. And more.
Once you've mastered the technical explanation, however, the deeper, more philosophical explanations are much harder to grasp. Why, for example, isn't anyone in the Department of Education especially bothered by the waste of $1 billion? When queried, department officials say they thought the loopholes were legal, they thought Congress was going to deal with the problem, and they thought that it would take more than two years to change the regulations if they did it on their own. Never mind that a recent Government Accountability Office report concluded that the whole thing could have been dealt with in a simple letter, or that a former general counsel for the department has said that the department's claim of powerlessness is "without legal foundation." I asked a Department of Education official -- Sally L. Stroup, the assistant secretary for postsecondary education -- whether she didn't think a billion dollars, in the context of education, was a lot of money. "We have a $50 billion student loan program," she replied.
But if administration officials aren't bothered, shouldn't Congress care? Call up Capitol Hill, however, and everyone is profoundly uninterested. Yes, they tell you, Congress did know about the problem -- has known about it for ages, thank you very much -- and, yes, the president's budget calls for closing the loophole and, yes, Congress was going to fix it in a bigger education bill. The spokesman for the House Committee on Education and the Workforce wrote to me, annoyed: "It is a bit exasperating that after spending most of 2004 fighting to pass a bill that would permanently eliminate the 9.5% guarantee, my boss and other Republicans now suddenly stand accused of keeping it intact."
But the bigger bill isn't going to pass this year, and in the meantime, I reckon the cost of providing free money to banks runs at about $2,739,726 every day. A one-page amendment, or a short, crisp bill, would have put an end to the whole thing. But although some in Congress are willing to do precisely that, the Senate has just refused. Among other things, it seems some senators wanted to kill the loophole in a larger bill, so that the savings count as "credit," so that the same amount of money could be spent elsewhere without anyone complaining. If that sounds overly complicated, that's because it is.
I could find deeper conspiracies here, of course. I could note, for example, that the student loan industry has contributed about $750,000 to the 49 Republican and Democratic members of the House education committee in the past 18 months. But the more I know about this story, the more I think it's explained not by a conspiracy but by a mentality. Just as it's naive to think that "student loans" means "helping students," so too is it naive to think that a billion dollars of federal education money means new libraries and lots of books. A billion dollars in Washington -- what's a billion dollars in Washington? Washington has a different perspective. After all, we in Washington spend a lot of time talking about the $2.4 trillion budget and the $3 trillion that will be spent on Medicare over the next 10 years. A billion dollars is petty cash here; a billion dollars is a rounding error in the budget calculations. Only hicks and neophytes worry about a billion dollars, and anyway this is an election year and nobody wants to talk about such dull matters as student loan legislation, when they could be out crusading against big government or the budget deficit. Ten years ago this week, the then-new Republican Congress signed the "Contract With America," vowing, among other things, to do away with "waste, fraud and abuse." It's reassuring, at the very least, to know that some campaign slogans will never go away.