The Daily Texan reported Tuesday on congressional advancements in private student-loan oversight. The newly formed Consumer Financial Protection Agency will have the authority to oversee student loans from private lenders to ensure that lending practices, unlike past mortgage and credit card lending practices, are not predatory.
This development comes a month after the House of Representatives voted on a measure to abolish federal subsidies to private lenders loaning to students. The Student Aid and Fiscal Responsibility Act will supposedly free up millions of tax dollars paid to the “middle man” that can now be invested in students rather than lining the pockets of loan giants.
“Today, the House made a clear choice to stop funneling vital taxpayer dollars through
boardrooms and start sending them directly to dorm rooms,” said George Miller, a California Democrat and chairman of the House Education and Labor Committee.
Of course, Republicans such as Rep. Brett Guthrie of Kentucky insist this new measure is just another terrible example of the government throwing money at a public problem that the private sector would have been happy to intercept.
“We can invest in students without crippling them with runaway entitlement spending,” Guthrie told The Washington Post. This is in stark contrast to Rep. Tom Petri, R-Wis., one of the six Republicans that voted for the measure, who has supported direct lending since 1983.
The measure is headed to the Senate, where it is expected to pass. But, as in the controversial health care debate, constant partisan bickering over the role of government in student aid reform is creating friction that is counterproductive to fulfilling the needs of the people.
As a former student worker in a financial aid office, I know firsthand that student aid needs a serious overhaul. My reaction to both steps by the House was, “It’s about time!”
Congressional realization that private lending practices desperately need supervision is long overdue.
While measures like online loan counseling help inform and protect student borrowers to some degree, private banks subsidized by the government have routinely taken advantage of students.
In one particular instance, students who chose to borrow money from Chase bank were dismayed to find that, without notification, their bank had decided not to send the funds. No explanation was given, and students who depended on their loan disbursement were informed mid-semester they must enter into another agreement with another bank, purely hoping history wouldn’t repeat itself.
In other instances, I have assisted bewildered students through complicated loan counseling. Under the current lending systems, neither poor credit nor records of incarceration were enough to have them barred from borrowing thousands of dollars from government-subsidized private lenders.
While I do not dispute the students’ right to a good education and a fresh start, this practice of lending money to at-risk borrowers mirrors the predatory practices that led to the housing market collapse. While disadvantaged students are trying to make a fresh start on a borrowed dime, private lenders are laughing all the way to the bank with their government subsidies and guaranteed protection from defaults at the hands of risky borrowers.
Institutions who aim to make money are very good at doing just that.
Government subsidizing these institutions is outdated and outrageous. The argument that the private sector should still be allowed on the playing field of student aid is a disservice to students. We can be thankful that Congress is attempting to make some headway in financial aid reform, but the congressional bickering needs to stop.
I don’t buy the sour-grapes conservative argument that government assistance inevitably leads to a democratic downfall of Orwellian proportions. Therefore, I will be urging my senators to implement the new reforms. My fellow students and I deserve the opportunity to borrow money for education from people we elected and from tax dollars we helped amass.
The private sector will just have to find a new group to exploit.
Shew is a psychology junior.
Students need financial aid reform
Published: Thursday, October 29, 2009
Updated: Thursday, October 29, 2009
1 comments
Ted
If the new, pending student loan reforms are designed to better serve the students and parents, why didn't Congress pass the savings, as lower finance charges, on to the students and parents? Ms. Shew assumes that students and parents are being solely exploited by the private sector. What about the federal government controlling the purse strings? Under the new reforms, the federal government will fund the student loans at a lower cost (borrowing) than the private sector, which is true since it controls the currency presses and can borrow cheaply until inflation sets in. The proposed savings will be used by the government to fund new entitlement and government programs. So the cost of funding may initially be as high as say 2.8% to the government, and under the reforms, student loans will continue to charge students and parents the 6.8%+; leaving the rest for government to spend. Sorry, parents and students! The bills will only stay the same or get larger.As you borrow from the government, you take on one of the few types of debt that cannot be discharged by bankruptcy court according to federal law. That law too is provided by the Congress and Federal Government. So, be careful what you wish for. The sour grapes may taste a whole lot better.
