Lobbying firestorm should not be last word on student loan reform
February 9, 2010
When the people of Massachusetts elected a Republican senator this January, it sent a shockwave through the nation. It wasn’t just about a painfully uncharismatic democratic opponent; it was symptomatic of a wider feeling that the current administration just isn’t getting things done. Democrats have lost their supermajority in the U.S. Senate, making it even harder to pass new legislation, and President Barack Obama’s attempt to reform student loans is no exception.
The proposed overhaul of the current loan system would remove the private middlemen and transfer the administration of student loans to the federal government. As Washington currently guarantees many private loans and pays part of the interest on their repayment, this would be a much less radical change than it may appear. Currently, banks make obscene profits, while the government bears the risk of defaulting students — sounds like a pretty sweet deal if you’re in the student loan business.
In his recent State of the Union address, Obama highlighted this obvious problem to rapturous applause from Democrats. Despite Obama calling the new bill “a no-brainer” four months ago, it still faces significant opposition from fiscally conservative senators. Moreover, Sallie Mae, the company administering the majority of these loans, has collected thousands of signatures at town hall meetings from voters who are not yet swayed.
As a citizen of England, I already benefit from loans administered by a non-departmental governmental body. My government lends me £4,500 ($7,000) a year and pays my tuition directly to my university, which I will pay back at an incredibly affordable rate depending on my income. To be honest, I didn’t even consider the financial obligations of a college degree when I applied. From what I have heard of the current system in the United States, this is far from the case for prospective undergrads here.
Obama declared in the State of the Union that “no one should go broke because they choose to go to college.” However, with college tuition reaching $50,000 a year at some schools, funding higher education is a problem that applies — directly or indirectly — to all Americans. With undergraduate degrees meaning less and less, the choice to go to college is shrinking, and graduate programs look more necessary. Yet, I can understand the reluctance of some voters.
Obviously I have no sympathy for Sallie Mae, which has spent $8 million dollars lobbying to protect its profit margins. As Secretary of Education Arne Duncan points out, private lenders have “had a phenomenal deal that taxpayers have subsidized, and that’s a hard thing to give up.” However self-centered the motives may be, there are obvious drawbacks to the proposed change. At a time when unemployment is circling 10 percent, this bill would see that around 35,000 people lose their jobs, while lenders argue that government-managed loans will rob students of the personalized service that protects them from entering into contracts uninformed and ultimately defaulting on repayments. Even with 10 times fewer loans to administer, the English system is riddled with complications, delays and miscommunications — more importantly, we recently saw millions of pounds and hundreds of jobs cut to reduce the government deficit. I can’t help but fear the same red-tape inefficiencies will permeate the American system, not to mention the partisan politics that would paralyze proceedings.
Yet, the inescapable reality is that something drastic needs to be done, and Obama’s plan is the best on the table. With a vested interest in a highly educated and economically stable population, a government-run program would be accountable to the people it serves.
Moreover, Obama claims the bill will save $80 billion in tax dollars over the next decade — money that currently goes into the pockets of private middlemen. This money could be used for things like increasing Pell Grants and providing tax credits and loan forgiveness for public servants. It would also mean tens of billions of dollars for funding early learning programs, improving community colleges, and modernizing public schools.
The problem is that it’s perceived as a federal takeover — government intervention at the most intimate level. If I had a dime for every time I’ve heard this kind of argument in the last semester, I wouldn’t need a student loan next year. I realize this is a kind of abuse many Americans feel very strongly about, but in this situation I think there are more important things to consider. Obama is trying to even the playing field; he’s trying to drastically reduce an obscene source of stress and uncertainty in the lives of young Americans, and he’s trying to do it in the best way he can think of. Fear the inherent inefficiencies of larger government if you like. Disagree with his liberal spending if you must. Just don’t throw out a viable option on conservative principle.
E-mail Lucy James at [email protected]