2-28-06, 9:08 am
The Republican bosses have sneaked one by us again. Congressional Republican leaders have pushed for two very important changes to the federal student loan program that will make financing a college education more difficult for working class students and repayment of student loans even harder than it is already.
First, the recently passed Budget Deficit Act enacts a provision called the Single Holder Rule, which will prevent people who owe student loans to a single lender from re-financing them with another company. Usually, re-financing, or consolidation, helps borrowers to lower monthly payments, making repayment more affordable and reducing default rates.
Second, the recently passed budget reconciliation bill switched the interest rate from a variable to a fixed rate. Variable rates, which have followed federal interest rates down these past two years, helped borrowers save hundreds, even thousands of dollars on their loan repayments. Changing to a much higher fixed rate than the recent variable rates will cost borrowers additional hundreds each year. A jump of 1.6% on Parent Loan for Undergraduate Students (PLUS) will cost even more.
On top of this, these rules changes will reduce the federal government’s commitment to subsidized student loans by billions each year, hurting the ability of lower-income students to finance an expensive college education.
Somebody has to pay for Bush's war in Iraq and the Republican tax cuts for the rich.
These provisions, greeted initially with bipartisan opposition, were authored and inserted into legislation by newly minted House Republican Majority Leader John Boehner (R-OH).
Despite Boehner’s vocal condemnations of corruption and influence peddling during his recent campaign to take the position after indicted former House Majority Leader Tom DeLay stepped down, the taint of the abuse of power and exchanging votes for cash are all over these student loan deals.
Right-wing pundits and student advocates, along with many Republicans and Democrats in Congress, insisted that these kinds of rules changes shouldn’t pass. But, taking a page from the DeLay handbook on legislation by fiat, Boehner used his powerful positions to make sure the new rules would be in the final versions of the bills.
Prior to becoming majority leader, Boehner sat on the House Education and Workforce Committee, which narrowly approved the Single Holder Rule last December. Other Republicans promised that the Single Holder rule, which in their 'free market' view limits competition for loaning money, would not make the final version of the bill. (Obviously their opposition was based little, if any, in concern for student borrowers.)
Sallie Mae, which already has the most favored lender status through special federal regulations that give it a de facto monopoly on educational lending, is expected to be the main beneficiary of the anti-consolidation rule, and certainly will profit from interest rate increases.
When other lenders and student advocates challenged Boehner’s decision to force these special provisions over their objections, Boehner explained that Sallie Mae’s windfall will help reduce the federal budget deficit. Unfortunately, this explanation fails to even sympathize with those less well-off students who will not be able to finance their education or with graduates trying to scrape out a living in the Bush economy and repay their debts. Meanwhile, the price tag the federal government pays out to subsidize private lenders will increase.
According to numerous studies by the non-partisan Congressional Budget Office and the Government Accounting Office (GAO), the federal government pays much more for loan programs that funnel money through private lenders. Some estimates indicate that the federal government pays 9 cents for every dollar that is disbursed by private lenders. The GAO also showed that if loans were re-consolidated through the federal government, it could save about $3 billion annually without reducing the amounts loaned to students.
Because the government doesn’t have to make profit or hand out hundreds of millions in pay and bonuses to corporate executives – Sallie Mae’s CEO Albert Lord averaged at least $10 million in pay and bonuses each year for the last five years – it can borrow and lend at much lower rates. Overhead could be reduced with a total federal government lending program.
Real student loan reform would ideally involve a single public lender with interest rates tied to the lowest rates available, income-based repayment plans, removal of banking and finance capital-connected individuals from university and college boards of trustees, and massive new investment in public education to reduce tuition and fees.
So, while the fat cats at Sallie Mae who get rich off of education loans may give Boehner a gold star rating for his work in Congress, it is difficult to tell where DeLay’s corrupt trail ends and Boehner’s begins. It just a new gaggle of lobbyists and influence peddlers bilking the federal treasury for personal profit and power. Again, the Republican bosses are showing who their real constituents are.
Now is the time to begin to educate and mobilize voters for November’s election. To end the Republicans’ corrupt practices, reverse their dishonest policies, and to take a step toward reform, the Republicans are going to have to be removed from power. And you are going to have to be there to make it happen.
--Joel Wendland is managing editor of Political Affairs and may be reached at jwendland@politicalaffairs.net.
