Obama and Dems Put a Stop to the Republicans' Kickback Cash Cow in the College Loan Industry

[marmar]

AlterNet / By Alexander Zaitchik

Obama and Dems Put a Stop to the Republicans' Kickback Cash Cow in the College Loan Industry
For years, Sallie Mae fed on taxpayers to finance Republican campaigns and private golf courses for their executives. No more.

March 31, 2010 |


Reining in insurers and expanding health coverage for Americans aren't the only reforms achieved last week by the White House and Congress. The passage of the health care bill also accomplishes a much-needed if less-noticed goal that, like health care, was last seriously pursued during the early days of grunge rock: The termination of federal subsidies to the scandal-plagued private student loan industry.

Within the pages of the Health Care and Education Reconciliation Act of 2010 is a section that, at long last, stops private lenders from profiting off federally subsidized student loan programs. This means an end to nearly four decades of corporate welfare for the government-created -- but now fully privatized -- icon of the industry, Sallie Mae. The savings to be had from terminating this subsidy -- estimated at between $60 and $70 billion over the next decade -- will go toward shoring up the Pell Grant program (which helps low-income Americans attend college), health care programs and deficit reduction. Where the Department of Ed has long paid private loan companies like Sallie Mae and Citigroup to issue and manage government-backed student loans, the department will now make all federal loans directly, without the help of a middleman, through its own Direct Loan program.

Private lenders, meanwhile, will bid for contracts to service, not originate, these loans.

The change is a major setback for a student loan industry grown fat and arrogant, which for decades has racked up huge profits by making government-backed, risk-free loans to students. Since 1965, these taxpayer-subsidized loans came with a double-guarantee: first against default, and another providing a floor on the rate of return. Taxpayers not only guaranteed high interest rates for lenders, they also protected the banks against any losses. The subsidies are a big part of the reason why Sallie Mae CEO Albert Lord was recently able to build a private 18-hole golf course on his 225-acre estate near his company's headquarters in Reston, Virginia. ........(more)

The complete piece is at: http://www.alternet.org/economy/146234/obama_and_dems_put_a_stop_to_the_republicans%27_kickback_cash_cow_in_the_college_loan_industry

[babylonsister]

1. Yay for us, and students! nt

[veganlush]

2. ok! n/t