Death of a Middleman
The following, by Congressman Jared Polis, was first published on New Era Colorado’s NewEraNews.org, a youth-driven blog about politics, news and culture. ~ Steve Fenberg
Much less noticed were opponents of another historic reform taking place while the spotlight was on health care. An army of bank lobbyists were working hard in a last-ditch effort to kill one of the most important pieces of higher education legislation ever – a major overhaul of federal student loan programs that will finance the single largest investment in federal student aid in U.S. history.
This landmark measure ended wasteful subsidies to big banks under the Federal Family Education Loan (FFEL) program by requiring that all new federal student loans are made through the existing Direct Loan (DL) program. This reform kills the middleman in federal student loans and ends the gravy train, which worked like this: Banks made federally subsidized loans to students. If those loans defaulted, then the government reimbursed them. In other words, taxpayers subsidized the reimbursements and absorbed all the risk, while banks made money. To add insult to injury, the credit crunch forced the federal government to bail out these lenders and provide the capital to finance the student loan lending. Today, taxpayers fund 88 percent of federal student lending activity.
So instead of continuing to pump taxpayer dollars into a broken middleman system when the federal government already provides the same loans through DL more reliably and at a lower cost, this common-sense reform diverts $61 billion over the next decade from banks’ loan guarantee and interest subsidy entitlements to students and their families. This investment will be used to protect and boost Pell Grant scholarships, help students manage and repay their loans, strengthen community colleges and reduce the deficit…
…Read the rest of the article at NewEraNews.org