What's New

Philadelphia Inquirer

February 17, 2010

http://www.philly.com/inquirer/opinion/84547202.html

Sallie Mae, the Virginia-based college-loan company with offices in Pennsylvania, is putting pressure on this state's senators to reject reforms sought by President Obama.

But if Sens. Bob Casey and Arlen Specter believe in making a college education affordable for more children, they won't cave.

The House has already passed legislation sought by Obama that would greatly reduce the middleman role played by lenders such as Sallie Mae in providing federally guaranteed student loans.

These lenders get government subsidies on top of the billions of dollars in interest and fees they collect from students.

The House bill would limit the use of these expensive middlemen and have the government disburse its loans directly. That switch could save an estimated $87 billion over the next decade, with the savings used to provide more grants and tax credits to students.

Sen. Tom Harkin (D. Iowa), chairman of the Health, Education, Labor, and Pensions Committee, plans to introduce a version of the House bill. But mounting pressure from the lenders - including planned radio ads predicting job losses if the companies lose business - could put the measure in jeopardy.

Sallie Mae says the switch could cost 2,500 jobs in several states, including Pennsylvania. In this economy, that's certainly troubling. But the focus must be on the jobs that will be created with the better-educated workforce gained through a less expensive student-loan program.

Without the profit motive of the private lenders, the federal government will be able to offer more reasonable interest rates.

The lenders also argue that Obama's plan would squash healthy competition and that students would not get the same customer service from the government. But the so-called healthy competition hasn't kept college-loan interest rates from soaring.

And the government is capable of working more closely with colleges to provide good service. It has been in the student-loan business for decades through its existing direct-lending program. What isn't needed is continuation of a system in which some lenders bribed college advisers to steer students to their loans.

More colleges are already switching to direct lending, after the government came to their rescue when the recession-spawned credit crisis left some lenders unable to fund student loans.

Sallie Mae has offered a counter-proposal in which government subsidies would end and private lenders would still collect lucrative loan-origination fees and service charges from students. But that plan would save about $4 billion less than Obama's.

That hardly sounds fair to students trying hard to pay for a college education. About two-thirds of the country's college students rely on loans. Too many are left saddled with debt for years. Congress needs to take this opportunity to change that.