Lobbyists Stop Student Loan Reform in its Tracks

Feb 16th, 2010 @ 6:32 AM by Debbie Dragon

Lobbyists this week marched on Washington, threatening an Obama administration bill that would overhaul the student loan industry. This effort could not come at a worse time for college students as well as colleges and universities throughout the country that were depending on the bill to help ease financial burden.

College students across the country are graduating with an alarming high amount of debt. The average college student today graduates with around $23,000 in student loans, almost double that of a just a decade ago.

During his presidential campaign, Obama pledged to help ease this burden, and this bill which passed in the House this past fall is considered by many experts to be what the student loan industry needs. Obama was quoted while running for president as saying:

One way we can make college more affordable-because of lot of young people have been asking me about this on the campaign trail-is by reforming a wasteful system of student loans that benefits private banks at the cost of taxpayers.

The Student Aid and Fiscal Responsibility Act would shift funding of student loans from private entities to the government, saving the government and taxpayers millions of dollars each year. Currently, the government subsidizes and backs student loans for private lending companies. These loans are guaranteed by the government, but privately administrated. Private student loan lenders are free to charge fees and higher interest rates. The bottom line is they are out to make a profit.

Under this bill, student loans would be issued by the government, carry low interest rates and not have any attached fees. It would also shift some of the money that is currently being used to subsidize private funded student loans to other government student aid programs. Some of the money would be used to issue Pell grants to students with financial need. More Pell grants would ease student loan financial burden and even allow some students to attend college who could not otherwise afford it.

It is easy to see why student loan lenders are not supporting the bill. They would lose student loan customers, who would instead look to the government for their loans, hurting private lender profits. Private lenders also claim the bill would put thousands of people out of work. Many critics disagree, however, that there would be that many displaced workers, arguing that most employed in the student loan industry would just shift to different lending positions.