…by Meg White
The place Meg puts the stuff she wrote
Viva la Student Loan Revolution

by Meg White

There are a lot of elements to President Obama’s healthcare reform bill that are complete and total hand-outs to megacorporations that feed off of the misery of the American people.

Now that the ping-pong-like process of legislative action on the measure is finally complete, I thought I’d look at one element of the bill that does not smell of sellout. Unfortunately, it also has nothing to do with healthcare.

Democrats added in direct student loan reform, a budget priority of President Obama’s, in the healthcare reform bill when it became clear to them that no Republican would be voting for the legislation anyway, and that reconciliation would be necessary to get past the Senate filibuster.

Starting July 1, the U.S. Department of Education will be solely responsible for issuing government-backed student loans (though private companies will still be able to service and collect on such loans). The way it works now is that even though loans are backed up by government guarantees (making them a no-risk proposition for lenders) private companies can actually make the “direct” loans, and thereby charge massive fees and exorbitant interest rates.

The massively abusive student loan system borrowers suffer under today was brought to you by a succession of privatization schemes over the last few decades (click here for a more in-depth summary of how we got here in the first place). Much as our financial system was brought to the brink of collapse with the help of decreased regulation, the withdrawal of the government from negotiating and regulating student loans allowed the private sector to operate nefariously, at times breaking the law to make a profit.

By some estimates the government is currently giving away more than $8 billion a year in subsidies to corporate education lenders, though they assume little or no risk in providing student loans.

On top of that massive waste built into the system, the industry is woefully corrupt. Through illegal bribes, conflict-of-interest-ridden preferred lender agreements with individual universities and fraudulent and abusive collection practices waged against borrowers, many private student loan companies have proven themselves to be unworthy recipients of government largess.

In short, it’s about time Congress did something to change the way we issue government-backed student loans in this country. And stopping corporate welfare has fiscal benefits as well. The nonpartisan Congressional Budget Office estimates that the subsidy change will save the government $61 billion over ten years.

Well over half of the money we’re currently giving to corporate lenders will instead go to the vastly underfunded Pell Grant program, which gives money to the neediest college students. The pool of eligible recipients will expand (from those with family incomes of $20,000 or less to a cap of $50,000) and the amount of the grant itself will rise from $5,550 for the coming school year to $5,975 by 2017.

Though the increased amount is less than many in Congress wanted, any boost is way overdue. According to the Associated Press:

When Pell Grants were created in 1972, the maximum grant covered nearly three-quarters of the average cost of attending a public four-year college. In 2008, the latest year for which figures are available, the maximum grant covered about a third of the cost.

So, while turning corporate welfare dollars into a path to college for the country’s poorest students may sound like “redistributing the wealth” to some of those welfare recipients and their beneficiaries, it’s a pretty easy call for the rest of us. But just because this plan makes total sense in fiscal terms doesn’t mean it was an easy fix to make.

Perhaps sensing how reprehensible it has become to defend loans sharks and predatory bankers, Republicans (along with honorary GOPers such as Sens. Ben Nelson of Nebraska and Blanche Lincoln of Arkansas) have decided to label the reform as a job-killer. They insist that some 30,000 to 35,000 private sector jobs will disappear when direct lending moves to the government.

But as the nonpartisan Factcheck.org points out, that number is based on a spurious claim by the lobby groups that represent private student loan originators (emphasis mine):

…35,000 is the number of people employed by the lending institutions. So the claim assumes that everybody working in the industry now would be thrown out of work.

In fact, it’s likely that only some of the 35,000 jobs would be affected by the bill. That’s because loan origination is only part of what these companies do – loan servicing is another big part. And under the pending bill, 100 percent of the loans originated by the government would be serviced by the private sector under competitively bid contracts. The industry would also continue to service about $500 billion in outstanding student loans. Some or all of the people now servicing loans would very likely be doing the same work under a new system.

Fact Check goes on to cite an independent industry analyst who estimated the legislation would amount to anywhere from a net gain of 300 jobs to a net loss of 4,750. Either way, the loss is a far cry from 35,000 jobs.

Of course, it shouldn’t surprise anyone that student loan reform opponents would copy off of industry lobbyists’ notes. After all, the student loan industry has spent tens of millions of dollars lobbying Congress over the past decade and has gotten a pretty good return on that investment up until now.

And a free hint to Republicans: If you’re going to let the economic downturn be your talking point guide, it’s important to remember the people who have already lost their jobs. As I pointed out before, there is a large population of “unemployed or underemployed people who are going back to school rather than spend time looking for a job,” and they are more likely to need a loan than a banking job.

And, while we’re talking about (real or imagined) job loss, let’s be honest about the kinds of jobs being “lost.” Republicans are crying out about a “government takeover” of the student loan industry, which is a far cry from the truth. But as I argued previously, I don’t know if that would really be such a bad thing in this particular case:

On a larger level though, do we want employees who have been trained to operate in a corrupt, parasitic system such as the student loan industry (some of whom have violated the law) to keep their jobs?”

I have this hunch that predatory lending, like coal mining and other jobs conservatives are worried will disappear under liberal administrations, takes its toll on the employee as well as the surrounding community. Seems to me the only entity that benefits is the corporation running the operation (and the politicians who are bought off by said corporation).

Of course, no good deed goes unadulterated in Congress. As the New America Foundation’s Higher Ed Watch points out, there’s still a handout for nonprofit educational lenders (state-based members of the Education Finance Council) in the form of no-bid servicing contracts.

…we have repeatedly stated our opposition to this provision, which is obviously a giveaway to wavering Democrats with close ties to the loan agencies in their states…

Still, we find it remarkable that lawmakers are still putting these loan agencies on a pedestal — despite all of the scandals surrounding them in recent years (the 9.5 rip-off, kickbacks to colleges, excessive executive compensation and wasteful spending, and, at least in one case, the suspected gaming the lender-of-last resort program).

But the foundation does note that the House bill, upon which the reconciliation language is based, was even more of an industry-penned give-away. That time line in itself is a victory: How often does legislation get less corrupt as time goes on? And the New America Foundation seems to see that:

And in the grand scheme of things, we recognize that the carve out for non-profit loan agencies is a small price to pay for a landmark student loan reform bill that probably couldn’t have passed without it.

So, while the rest of the country bickers and growls over healthcare, raise a glass to the little piece of real reform that made it in.


Originally published at BuzzFlash.com.

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