Why students should care about student loan legislation
Posted September 30, 2009 at 12:00 am
Updated September 30, 2009 at 12:33 am
Becky Zhao | Student Life
On Sept. 17, 2009, the House of Representatives voted to approve the Student Aid and Fiscal Responsibility Act of 2009 (SAFRA) by a 253-171 margin, thus sending it on to the Senate, where it awaits further action. This issue has largely flown under the radar, which is unsurprising considering the fact that it affects only a small subset of the country. Other issues, such as the Iraq war, the complete failure of our banking system or the current American automotive industry crisis have garnered far more media attention and public awareness.
Despite a lack of mass appeal and public cognizance regarding SAFRA and its surrounding issues, the student loan system in the United States is an increasingly important matter. Regrettably, on college and university campuses, knowledge—or at least public and open discussion about the loan structure—is severely lacking. I cannot claim to be able to speak for the entirety of Washington University, but from what I have seen, there has been little to no dialogue regarding the current system, SAFRA or its ramifications. This could possibly be explained by the socioeconomic diversity of Wash. U. students. We have come under fire for having the lowest percentage of students receiving Pell Grants among top-ranked national universities, at 7 percent. Pell Grants are federal grants of up to $5,000 that are given to students who demonstrate financial need.
In the United States at this time, the Department of Education administers a series of loans, grants and programs designed to ensure that students from low-income families receive enough money to attend college. This patchwork of federally guaranteed bursaries is often distributed by banks (such as Sallie Mae, the largest student loan company in existence), which are given subsidies to provide loans for students. SAFRA would cut out private banks, which often make a killing—in taxpayer money—giving out the loans when students have difficulty paying them back. Providing direct federal aid instead of handing out loans through banks would save an estimated $87 billion in subsidies, which could either be used for additional loans or be funneled into other public welfare projects. One specific option that could directly affect Wash. U. students would be to increase the amount of money paid by the government via Pell Grants. In doing so, students who receive said grants would be less burdened financially by the extravagant collegiate tuition.
Despite the bill’s seemingly impeccable intentions and purpose, there has been opposition. Members of Congress have objected, saying that the bill merely expands the role of the government in our lives. Citing examples such as the automotive industry takeover and the semi-nationalization of many banks, they question whether direct government spending is really the best option for the provision of student loans.
Yes, it is, in fact. The system of student lending, originally intended to help underserved students and their families, has mutated into a multibillion-dollar industry run with the intention of turning a profit with government money. At this point, merely altering the system won’t do. A restructuring, from the ground up, is necessary. And that is what SAFRA would do.
One criticism often levied at the bill is that it would cut out approximately 35,000 jobs in the loan industry. When pressed, however, proponents reveal that the actual job losses would be roughly one-third of that. Companies have also considered bringing back jobs that have been outsourced; Sallie Mae alone is planning to move 2,000 back to the United States. In doing so, domestic job losses would be offset even more.
In many ways, the current student loan dispute mirrors the current economic crisis, with debate raging about the role the government should play and both sides slinging words at each other (including classic, loaded accusations of “socialism”). Much like universal health care, nationalizing student loans would increase efficiency, lower costs and allow the program to expand across a greater scope. If the Senate passes SAFRA, the first steps will be taken towards ensuring that cost is not a consideration when attempting to attend college.
As college and university students, many of whom are partially or completely dependent on various forms of financial aid, this issue pertains directly to us. As a result, a lack of knowledge or tenacious opinions about the matter amongst the student body is depressing and should be rectified.
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On September 30, 2009 at 8:52 am Jason said
Unfortunately, this column fails to explain why WU students should care about the move to Direct Lending.
On September 30, 2009 at 10:42 am Ted said
“Cost is not a consideration when attempting to attend college” is a rather naive statement when one considers that since 1982, college tuition and fees have risen 439 percent while the median family income has only increased 147 percent.
It may be better stated that “until you have to pay your student loans back to the government, cost is not a consideration”, and by then, you are saddled with debt that cannot be dismissed or forgiven according to backruptcy law.
Direct lending will not change that, but the federal student loan interest that WU students pay will help the government offer more Pell grants elsewhere. So if you are big on entitlement programs, there’s the good news.
As far as customer service is concerned while in repayment, Direct Lending will have WU students dealing directly with their loan holder, the federal government. Service with a smile awaits, I suspect.
On September 30, 2009 at 4:03 pm Nina Burns said
Here is why you should care:
1. Interest rates and program regs are set by the government. Students are paying 6.8% fixed for the life of the loan in an interest rate enviroment that is much lower! You are paying for the program whether Direct Lending or FFELP. As little as two years ago, many banks began to lower interest rates as a way of competing for your business. Competition makes the program strong and honest. Once the government has the program, what happens to competition and what happens to your choice as students? You have nothing! The FFELP program has been in exsistence for over 45 years and although DL is also available, you have a choice. Think about monopolies and how they work and what the ultimate outcome is? As Grad Students you are not eligible for many of the reduced or free money offered by the government, yet you pay for the program in fees and high rates. You should care! Scream about choice and about making the program better by competition!
On September 30, 2009 at 9:07 pm Edvisors said
There is a great article at FinancialAidNews.com detailing the issues the UK government, which operates a 100% direct student loan program, is having processing loans due to increasing demand. Basically, they are overwhelmed.
See:
http://www.financialaidnews.com/2009/09/22/
Also, have you been keeping up on the issues the US government is having with processing GI Bill payments – they can’t handle the increased demand.
There are options – a combined federal and private solution will work. It may cost a little more – but the results for the students and schools will be better service.
On October 2, 2009 at 10:14 am Jason said
Thanks to Nina Burns for doing something that the column failed to do: offering up a reason why a WU student should care about the move to Direct Lending.
And, I do understand your point about the value of competition. However, your point would suggest that you do not know a lot about the history of the FFEL program.
The program was never about competition and the free market. The program is GOP-supported, US-style socialism at its best: pay a private company loads and loads of money to administer a government program. And, even better, let the government take on all the risk.
Subsidies distort the market. We all know this. Imagine how much lower the “lower rates” could have been if we, the taxpayers, were not paying lenders as much as 9% in subsidies. The problem is that we cannot trust the government to pass along the lower rates. Instead, they will be used to subsidize the Pell Grant. The value of that is an entirely different conversation.