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Chattanooga Times Free Press

February 10, 2010

http://www.timesfreepress.com/news/2010/feb/10/put-students-over-lobbyists/

Even as colleges are being forced to raise tuition costs to prohibitive levels, governors and educators everywhere cite the need to get more students through college, to raise graduation rates, to improve students' competitive edge and to lure new businesses to their states. Given those conditions, an effort to expand federal student loans by $80 billion over the next 10 years simply by eliminating wasteful, private-industry middle-man costs would seem to be a no-brainer. Why not let students and their parents arrange their loans directly with the lending source?

Indeed, direct-source lending is a nobrainer, except for one thing: For-profit lenders are trying desperately to save their $80 billion gravy-train in no-risk, government-guaranteed profits over the 10-year period. They are fighting vehemently through their lobbyists in Congress to kill legislation that would eliminate their middle-man role in a loan system they never should have been given in the first place.

The cost-savings, to be sure, is a legitimate figure. It comes from an indepth study by the Congressional Budget Office, the non-partisan scorekeeper on financial issues for Congress.

The battle that's shaping up amounts to another classic epic in the unending struggle to clip the silk-stocking recipients of corporate welfare. As might be expected, the lobbying campaign is being led by banks and Sallie Mae, which was originally created as a governmentsponsored entity and later privatized in 2004 as a for-profit corporation.

Sallie Mae, listed on Wall Street as the SLM Corp., generated $22 billion in risk-free (i.e., government guaranteed) student loans last year. It poured $8 million into the industry lobbying campaign in 2009 to kill the bill to revise the loan system, which was passed by the House last year and now awaits action by timid senators. Other lenders have chipped additional millions into the lobbying campaign. Energized by recent election returns in favor of Republicans, their traditional supporters, lending-industry lobbyists have been button-holing senators to argue that their student-loan

profits support some 35,000 jobs for lending officers that key states shouldn't have to lose.

That argument pales against the benefits to students and their families, and it also seems suspect. Sallie Mae's focus on student loans is a rich anomaly: Most lending institutions delegate their student loan work to officers who handle a wide range of loans. Moreover, directlending would not amount, as critics claim, to a "government takeover" of the lending business. Colleges and universities would continue to handle student loans as they now do, and private businesses would administer and collect the loans.

Still, the chief benefits of cutting the corporate overhead would accrue to students. The money to be saved by direct federal lending would be used to expand direct Pell Grants to students, to create $10,000 tax credits for families with student loans, and to forgive loans for students who complete qualified public service programs in lieu of reimbursement. Teach For America, which funnels highly motivated new teachers into needy school systems across the country, is just one such program.

Eliminating the for-profit middlemen, moreover, would extinguish the sort of lending scandals that arose over the past few years between college loan administrators and the lenders who bribed administrators to steer student loans to them. It is those scandals that suggest why lenders' current arguments that "lending competition" benefits students should be seriously scrutinized. In fact, stream-lining the lending business would rectify the error made several decades ago when Republicans passed the legislation that gave the sweetheart studentloan business to private lenders - and thus generated the bribing scandals.

It would be far better to use the savings to expand student loans, to help more needy students, to make college more affordable for every student who needs aid, and to help build our national prosperity. If our senators can't stand up to lenders' lobbyists for those values, they need to question their own values.