• Higher education: Usury in student lending Higher education: Usury in student lending St. Louis Post-Dispatch, June 18, 2005 Federal lawmakers and the Bush administration should insist that every loose dollar in the Education Department’s budget support programs to make
• Higher education: Usury in student lending
Higher education: Usury in student lending
St. Louis Post-Dispatch, June 18, 2005
Federal lawmakers and the Bush administration should insist that every loose dollar in the Education Department’s budget support programs to make college more affordable for the poor.
That isn’t happening. Just before last year’s presidential election, Democrats criticized the federal government for routinely handing out millions of dollars in unearned subsidies to student loan companies. The subsidies resulted from a law that once allowed lenders to charge 9.5 percent interest for these loans.
Congress had set that high rate of return in order to give lenders an incentive to make the loans during a period when interest rates were high. Many lenders continued to enjoy the high rates after the going rate sank below 4 percent.
When Sen. Edward M. Kennedy, D-Mass., decried this policy, embarrassed Republicans pointed out that the higher interest payments began during the Clinton administration. They agreed to a new law that was supposed to rein in the higher payments.
That didn’t work. Earlier this month, the inspector general for the Education Department reported that a New Mexico student loan company had improperly exploited the federal subsidy program by charging 9.5 percent interest on its student loans and was overpaid by as much as $36 million. The company insists it has followed Education Department rules.
What’s especially disappointing is the Education Department’s response to the inspector general’s findings. It again shifted the blame, hiding behind the excuse that it’s simply following Clintonera policies and that it has no authority to close the loopholes that lenders continue to exploit.
In fact, the Government Accountability Office said last year that the department had the authority to close the higher-interest spigot any time it wished. Meanwhile, the inspector general urged the department to figure out how much lenders have been overpaid.
Some in Congress say the overpayments could run into the billions of dollars. This waste of money is being tolerated at a time when less federal assistance is available for college.
A growing share of Pell Grant money is used for merit scholarships, with more of the money going to students at elite schools. A decade ago, more than 90 percent of this assistance went to need-based aid. Now, the figure is 75 percent.
This shift and the unconscionable tolerance of usurious interest rates undermine the principle of open access of higher education to students of all income levels.
