Private Student Loan Lenders Prepare for Battle

April 21, 2009 by  
Filed under Loans and Borrowing

student_loanThe federal government has been subsidizing student loans made by private lenders since 1965. This must end and, to his credit, that is what President Obama wants to do.

Putting an End to Student Loan Profiteering

Much of the student loan industry is a racket that exploits college students who ignorantly and naively embrace the concept that piles of student loan debt are part of life. That’s what all of the colleges have been telling them. Many parents have joined the “borrow your way through college” crusade, as part of their own “borrow your way through life” mentality.

Mr. ToughMoneyLove on the other hand is a crusader against student loan debt. We have been fortunate in our ability to send our sons to college without asking them to borrow. If we did not have the resources to accomplish that, we would have insisted on a Plan B that did not include student loans. Who wants to start their life as a young adult dragging around a student loan ball and chain?

Recent estimates are that the federal government would save $94 billion over ten years by ending the private student-loan subsidy program. The private lenders rake in huge profits with very little risk, because the taxpayers are backstopping the loans.

Private Lenders Launch Pro-Choice PR Campaign

President  Obama has formally proposed shifting government money away from private student loan subsidies and into direct government lending and grants. In response, as this piece from NPR confirms, the lobbyists for the private student loan profiteers have entered attack mode.

The lobbyists for the lenders are taking a hilariously “warm and fuzzy” approach. They say that eliminating the government subsidies interferes with “choices” that student borrowers should have. From the NPR piece:

“We believe preserving choice is an important component of this program,” says Jack Remondi, chief financial officer at the biggest private lender, Sallie Mae.

Kevin Bruns, of the industry coalition America’s Student Loan Providers, wants to keep the two choices: direct federal loans and subsidized loans.

“All the Democratic candidates’ health care proposals in the last election, and in this administration’s health care proposal, are completely premised on consumer choice,” Bruns says.

Sure Mr. Bruns, student loans and health care – they are equally important to us all. Have you ever heard the phrase “comparing apples to oranges”?

Who can be against “choice”? We have been programmed to elevate choice to being a virtue unto itself, without due regard to the consequences of our choices. Enough of that silliness. The devil is in the details of that choice.

Can the lenders’ hypocrisy be anymore transparent? The choice that is being threatened is one that involves wasteful government spending that boosts the profits of private lenders. I’m surprised that the lobbyists aren’t claiming that it is somehow “un-American” to remove the private lenders from the student loan gravy train.

Sallie Mae is the largest provider of government subsidized private student loans. It has hired two powerful lobbyists: Tony Podesta (his brother headed the Obama transition team) and Jamie Gorelick (a senior Justice Department official in the Clinton administration.) And to boost its own PR credentials, Sallie Mae is moving 2000 jobs back to the U.S. that it had sent overseas. The United States Student Association is unimpressed:

In the past year, while students have been drowning in debt, Sallie Mae awarded its chief executive $4.6 million in cash and stock and its vice chairman more than $13.2 million in cash and stock, including the use of a company plane.

If the “choice” PR campaign fails, I expect that private student loan lenders will quickly roll out another campaign, perhaps arguing that their loans will assist students in establishing a credit score. That’s right – let’s be sure that young adults quickly conform their financial lives to the whims of both private lenders and the credit score industry. These fine institutions deserve our respect and loyalty.

So here is my call to action. Please contact your Congress person and Senators and tell them that $94 billion in subsidies to private student loan lenders is a choice we can and should do without.

Image credit: GiddyGoose


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6 Responses to “Private Student Loan Lenders Prepare for Battle”
  1. The sooner we get the federal government out of education (and many other activities), the better. Education is something that should be home grown, not a federal issue.

    A similar scam is used by various industries across the country. The federal government pledges money to help other nations, and U.S. consultants end up getting most of that money funneled right back here, instead of being used by the other countries. It’s another form of corporate welfare.

    Anytime you have a big pile of money controlled remotely by a handful of people, there will be lots of folks trying to figure out a way to get a share of it. If the pile of money is in local hands, it’s easier to keep an eye on it and influence how it’s used.

    Clair

  2. My Journey says:

    I have absolutely NO proof – but I feel like the college education system as we know it is a bubble about to burst. Loans will stop coming in and the 8% increase in tuition every year will have to cease and tuitions will have to come down – Because it unjustified.

    Why is there an increase in tuition every year anyway? Do professors’ salaries really increase that much?

  3. standupforstudents says:

    I sympathize with all the students caught in the trap of student loan debt and I especially feel that the private student loan holders are in the most trouble. These are loans with ZERO consumer protections and the only for-profit consumer loan in the country that is void of bankruptcy protections. Why we have allowed, and continue to allow, Congress to award lobbyists with such “gifts” at the expense of our young is beyond me. To me, this is something that is shameful in the highest degree. The only way this will change is for EVERY student and EVERY parent and EVERY person who cares about our young adults, to ban together and DEMAND that Congress start looking out for us. This will require them to allow the President’s change in FFELP, restore all consumer protections and restore bankruptcy protection, at a minimum. This needs to apply to all current and future, and very important, all the students who have previously been hurt by the actions of Congress, former students. Additionally, as a non-lawyer, I am curious why all the new and current lawyers who have been hurt by this problem do not take it on in the courts. There are many areas that are crying for a lawsuit, particularly with the private lenders. I think ACTION on our part is the only thing that will work and part of that action is contacting all your representatives, from the top to the bottom, and making sure they understand that if they do not correct this injustice, they will not be re-elected.

  4. Irina I says:

    I like this post and agree that the subsidies should stop. However, what would be the result of that? Will there be a program that uses that $94 billion more efficiently to help students get a higher education or will that money just evaporate in the federal budget?

    Before calling my Congress person or Senator, I would like to know the answer to those questions. Could you point me to some reading?

    Thank you!

  5. standupforstudents says:

    I know we are dealing with the Federal government here but…….currently, I believe, the proposal is to cut out the middleman (private lenders) and originate all the loans through the Direct Loan program, as it relates to loans backed by the government. This means that the Federal government will be the lender but, for the servicing, they currently have a bid out (to be decided soon) on private companies servicing the loans so, most likely, you will deal with a private company once you have the loan. In my opinion not a good idea either if it is one of the current private companies responsible for many of the hardships students now face. The $94 billion savings is supposed to be put into the Pell grant program so that more students can get grants – not loans- to assist with the cost of their education (a very good idea.) As far as reading goes, if you google FFELP, you should get all the current news items on this debate. Also, if you google, let’s say, Sallie Mae (a private lender), you will find millions upon millions of postings of real experiences that almost 100% fall into the negative category – this will illustrate the problem with allowing things to remain as they currently are. Let me just say that the current debate is about Federally backed loans, not private loans. That is a much, much, much, larger problem that has caused a tremendous amount of hardship and, in my opinion, needs to be super regulated, if it exists at all. Just about anything would be preferable to what we now have however, I believe we should insist upon the correction of what has been done that has caused so many young Americans to have no hope – all for the want of making private companies richer.

  6. I wonder at want point does the expense of college become a deterrent to so many kids that we actually start seeing fewer kids in higher education each year?

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