Borrowing from the future

At long last, the student loan industry is getting a much-needed kick in the pants after a bill passed by the House that will most likely be scooted through the Senate with little delay. \nThe legislation will cut $19 billion in federal subsidies to lenders over five years while increasing the maximum Pell grant amount and reducing interest rates of the federally-backed loans. Currently, the government pays lenders to provide their stated duty to students as a type of insurance policy against bankrupt students. The plan is to take the extra tax revenue and redistribute it through the federal grant system with no obligation to repay the money, except to be a productive member of society.\nThe long-overdue legislation responds to lenders’ dubious practices, made famous by Education Secretary Margaret Spellings’ revelation that they had been defrauding the government of millions through an interest rate loophole which guarantees 9.5 percent interest on all loans received before the year 2000. The universities themselves are not so angelic, either. They turned a blind eye to the problem by drawing up “preferred lender” lists. IU has not specifically been linked to these practices, but the Indianapolis Star reported in June that we received one of the 900 warning letters from the Department of Education for the unusually large number of students using Sallie Mae.\nCritics of the bill say it will force most small lenders out of business while giants will endure the cuts without much problem. Though some sources have predicted less competition among fewer lenders, and therefore a drop in the number and scope of discounts and incentives for students, the bill is a marked improvement for the largest number of people. As for calling it a “welfare program,” that’s the purpose of the government: to provide for the education of its citizens. \nBut many other, less senile old men, such as Representative George Miller, D-Calif., favor the bill. He compared it to the G.I. Bill, considering the legislation “a new investment for the next generation.” According to the New York Times article in which he’s quoted, college costs are exceeding inflation rates by almost 40 percent and play a large role in the number of students who drop out or cannot afford to attend. Fortunately, the new legislation is expected to pass through the Senate without a hitch, and the president is not expecting to veto it. \nThat college costs outpace inflation rates is both telling and disturbing; state subsidies for education historically take cuts to balance budgets, with the implicit understanding that tuition rates can be raised. But using higher education cuts as a crutch to escape a faulty budget is precisely the source of the student loan issue. The states defaulted on their obligation to education, forcing into existence a student loan industry that costs the federal government billions of dollars. This legislation, though negligently late and only a small step toward greater support for students, is playing collection agency to a rampantly fraudulent loan industry.