Desperate to save their businesses, the private companies who sell loans to college students have been heavily lobbying the government to keep subsidizing their loan programs. A bill that will overhaul the private loan industry recently passed in Congress with clear support from President Obama, who stated in his recent State of the Union Address “no one should go broke because they chose to go to college.”
The new proposal would retract government subsidies to private lending companies and cap the amount students have to pay back every month to 10% of their salary if they make more than $16,245 a year, reports Bryan Gerhart in his article for the California News Service. Loans that hadn’t been paid back after 10 years would even be forgiven if that student worked for a nonprofit or government organization. Obama aims to use the savings generated from the switch to fund other educational programs.
Lobbyists from companies like Sallie Mae, a large student lender, have heavily targeted fiscally conservative senators in the past couple of weeks and tried to convince them to maintain support for their private lender programs. Within the current system, the government guarantees the loans of private lending companies and also subsidizes the interest. Private lending companies argue that they make loans more accessible and offer more guidance to students than the federal government would. They also attest that competition among private lenders drives the prices of loans down.
But in the end, the private lenders serve as middlemen who can profit from lending money that they don’t even need to guarantee, while taxpayers pick up the slack and students see ever-increasing rates. Many have seen fault in this system for years, including Michael Kinsley who wrote a probing editorial for Slate about student loans back in 2007. Newsweek reveals opinions from both sides of the issue in a short interview with a special counsel at the Consumer Banker and a policy director at Education Sector.
