Students welcome overhauling private loan industry

Every year millions of students graduate from college with tens of thousands of dollars in student loan debt. Students then have to compete for a job during a time when the U.S. economy continues to struggle and unemployment figures are at record highs.

They, like so many these days, just need a break.

That’s why student activists are supporting President Barack Obama’s plan to end private-bank involvement in the student-loan industry. They’re also hopeful such legislation, which would divert savings and boost Pell Grants to lower-income students and much more, will pass this year.

In his State of the Union Address to Congress last month Obama reiterated his support for the proposal, which would end subsidies and effectively cut private lenders from making loans. As a result the Department of Education would become the sole provider of government-backed loans.

“To make college more affordable, this bill will finally end the unwarranted taxpayer subsidies that go to banks for student loans,” said Obama. “In the United States of America no one should go broke because they chose to go to college.”

Obama was referring to the Student Aid and Fiscal Responsibility Act, H.R. 3221, which was approved last year. The measure however has become stalled in the Senate.

Jake Stillwell with the United States Student Association, one of the largest student-led organizations in the nation with 4.5 million members, said his group unanimously supports the president’s plan.

“We have been working real hard to pass this bill because reform on this particular issue is absolutely needed,” he said.

Stillwell said the federal government is perfectly capable of handling the student loan industry on its own. They’re also more student-friendly especially when it comes to lower interests rates, income-based repayment options and dealing with a possible credit crunch, he notes.

“We think if the government is going to spend billions of dollars every year then it should go toward students and not the banks,” said Stillwell.

The reform bill makes perfect sense and would save the government $87 billion over the next decade, he said. Key investments could be made toward minority serving educational institutions like historically black universities and community colleges, notes Stillwell.

According to Stillwell the average student borrower is almost $25,000 in debt after graduating from college.

The USSA communications director emphasizes the longer the bill is stalled in Congress the less federal savings is accumulated – “which why we need to pass this bill now.”

Students are stuck with so much debt once they graduate, he said, and all this is during a time when the job market for them is widely seen as the worst on record. When students who graduate from college are chronically unemployed it really hurts the American workforce, he said.

How are young people going to invest in a home, a car or support a family, he asked. These are values that strengthen our economy and would make a permanent amends to the current economic crisis, he said.

According to a 2008 federal report postgraduate student debt has risen by about six percent per year since 2003.

Passing the legislation is vital because money that would be saved by cutting out the private-industry middlemen – about $80 billion over the next decade – could instead go toward expanding direct Pell Grants to students, according to a Congressional Budget Office. It would also establish $10,000 tax credits for families with loans, and forgiving debts eventually for students who go into public service, administration officials say, as reported in the New York Times.

Maria Escobar is the national coordinator with the Student Labor Action Project and said the bill is one of the most important pieces of legislation regarding students in the last several years.

The bill would make college more affordable, she said. It’s really a stimulus proposal for students and could only improve the American economy, she notes.

Obama’s plan is also in tune with challenging corporate power, which is also very important, said Escobar.

“We need to prioritize students and working people in general and pass this bill,” she said. “How can students achieve the American dream if they’re being denied access to higher education,” she asked.

Meanwhile the bill faces fierce attacks from the lending industry including the entire Republican Party.

For example Sallie Mae, the nation’s largest private student loan company, opposes the measure arguing it would eliminate thousands of jobs. Sallie Mae spent $8 million in lobbying against the bill in 2009.

Lenders have been leading town-hall gatherings, meetings with members of Congress and petition drives to support their opposition to the bill. They’re also pressuring moderate Senate Democrats in crucial states in an effort to block the government’s plan to overhaul the industry.

Democrats are considering an attempt to move the bill through a special procedure that requires a simple majority rather than the usual 60 votes needed to stop a filibuster.

Critics contend Sallie Mae and the Republicans are using tactics straight from the health insurers’ playbook, similar to those used in the health care debate to obstruct the legislation.

Many foresee what eventually plays out in the health care reform process could also determine a similar outcome when it comes to passing federal legislation on the student loans business.

Nonetheless student activists and their allies are not wasting any time.

Hundreds are planning a march and rally on the nations capitol to support Obama’s initiative during USSA’s legislative conference scheduled next March. For more information go to www.usstudents.org.

Other actions that support reform are being organized to take place during the National Student Labor Week of Action scheduled from March 28th – April 4th.  Go here  for more information: www.studentlabor.org.

“We’re hopeful that the Obama administration will be active and continue to support this legislation and pressure the Senate to do the right thing and move on this very important issue,” said Stillwell.

Photo: Pepe Lozano