Commercial Banks Kicked Out of the Student Loan Game

by Alex DiBranco · 2010-03-26 14:23:00 UTC
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Students won a victory over lobbyists this week with Congress' passage of a student loan overhaul. Three cheers for youth power!

In the past, the federal government has subsidized private loans from banks while accepting virtually all the responsibility for said loans, lining the pockets of bank fat cats. (Where do you think they get all that money for lobbyists?) As Changemaker Rep. George Miller (D-CA) put it: "Why are we paying people to lend the government’s money and then the government guarantees the loan and the government takes back the loan?" Hm ... good question.

Well, that system is no more! Instead of forking over billions to the bank, the government will now be providing that money directly to the students through a direct lending program. By cutting out the greedy middleman, the Congressional Budget Office estimates the new program will save taxpayers around $61 billion over 10 years. And students will reap the benefit of saving go to fund higher education.

Unfortunately, it's not all great news. As tuition climbs toward Mt. Everest every year, the maximum federal Pell grants are increasing a mere $400 to $5900, which is only about the third of the expense of a low-cost public university. Back when Pell grants first entered the playing field, they covered 75% of the price of tuition, but every year they've fallen further and further behind in the race. That's why a growing number of students hit graduation day with 20 grand or more in debt. Ouch.

Photo credit: Omar Omar

Alex DiBranco is a Change.org Editor who has worked for the Nation, Political Research Associates, and the Center for American Progress. She is now based in New York City.
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