College loan industry wary of shift
November 29th, 2006 - Posted in College Loans, Educationrats are about to take control of Congress, that industry - the bankers and financiers who make college student loans - will have to contend with a lawmaker who has compared it to the greedy usurers Jesus drove from the temple of Jerusalem.
“It’s time to throw the money-changers out of the temple of higher education,” thundered Sen. Edward M. Kennedy, D-Mass., who is in line to become chairman of the Senate committee that oversees education programs.
Within the student loan industry, the impending transfer of party control is producing waves of anxiety - in part because Democrats have promised that one of their first acts will be to cut interest rates on student loans.
Having worked hard over the last decade to make Republican friends in high places, bankers are moving quickly to open wider avenues of communication with ascendant Democrats, such as Rep. George Miller, D-Calif., incoming chairman of the House Education and Workforce Committee, who got a post-election invitation to address a student loan trade meeting this week.
Democrats want to cut the rate that students pay on federally backed loans from 6.8 percent to 3.4 percent. But the cost to the Treasury would be substantial - an estimated $18 billion or more over five years.
The interest rate cut could be made without touching the subsidies the government pays to companies for lending money to college students. About 8.5 million students and parents pay for college with federal student loans every year. The $67 billion borrowed in 2005-06, which includes both direct loans from the government and federally backed loans through private lenders, is the largest source of federal financial aid for college.
Republicans argue that cutting interest rates is a misplaced priority because it would not affect what they see as a more fundamental problem - the rising cost of college.
“The interest rates shouldn’t be the major issue here. Rather, the principal - the amount of money students are forced to borrow because of skyrocketing costs - should be,” said Steve Forde, a spokesman for Republicans on the House Education Committee.