House of Representative Favors Students Over Loan Companies
July 12th, 2007College costs have outdistance inflation by nearly 40% over the past 5 years. While government has been subsidizing education, many of these subsidies have been going to loan corporations like Sallie Mae, not students.
A new bill that was approved in the House of Representitives and is headed for the Senate may slash government subsidies to lenders by as much as $18.3 billion. To offset this drop they are also increasing Pell grants for students by over $500 over the next for years. The NYT reports on the changes
As well as cutting lender subsidies, the bill reduces the share the government would guarantee in the event of student default. It halves the interest rate on federally backed loans gradually over the next five years, to 3.4 percent from 6.8 percent, and would limit monthly payments to 15 percent of the borrower’s discretionary income.
The bill raises the maximum Pell grants by $500 over the next four years, to a total of $5,200 by 2011. It also grants $5,000 in loan forgiveness for police, firefighters, prosecutors and other public servants, and a complete release from student loans for public servants after 10 years. It would also provide for complete forgiveness of federal student loans after 20 years for economic hardship.
In that article they also said that the smaller student loan providers are likely to be hardest hit. That is not for the least of reasons because they can’t compete with equal marketing budget, and at as many as 800 US colleges the top loan provider offered over 70% of the student loans. Andrew Cuomo has been investigating some of those backdoor deals at Sallie Mae, Nelnet Inc., Education Finance Partners Inc., EduCap Inc., the College Board, and CIT Group Inc. for many months.
According to Cuomo, investigators found:
- Lenders pay kickbacks to schools based on a percentage of the loans directed to the lenders.
- Lenders foot the bills for all-expense-paid trips for financial aid officers to posh resorts and exotic locations. They also provide schools with other benefits like computer systems and put representatives from schools on their advisory boards to curry favor.
- Loan companies set up funds and credit lines for schools to use in exchange for putting the lenders on their preferred lender lists and offer large payments to schools to drop out of the direct federal loan program so that the lenders get more business.
