Add another tax-revenue draining loophole to the list of errors on the part of the federal government. This time, it’s personal: Student loan companies have been taking advantage of government oversight to bulk up on a disproportionate share of the nation’s financial aid dollars. This money should be going to students instead of lining the pockets of financial aid institutions.
With monetary assistance from the government, student loan corporations are able to offer students exceptionally low interest rates and still cut a profit. The government dropped nearly $1 billion on these subsidies this year alone, most of which became pure profit for the lending companies.
In the 1980’s, the government paid out subsidies that guaranteed loan companies would collect interest rates of 9.5 percent on money they lent, regardless of the rates paid by students.? In 1993, Congress did away with this policy but allowed companies to continue collecting interest on funds they had already accrued.? Currently, students are charged 3.4 percent interest, but the companies continue to collect the 9.5 percent interest rate from the government.
Despite public knowledge of this gross waste of resources, little has been done to end the subsidy program. Although a resolution to cut the subsidy program has been passed by the House of Representatives, it has stagnated in the Senate.
Department Of Education general counsel Brian Jones (MSB ‘90) said that the Bush administration cannot immediately end the subsidy program due to a mandated decision making process.
Jones was quick to point out that the Bush administration “certainly supports correcting this problem.? The President was the first out of the box to say that this needed to be resolved.”
However, as the government stalls, the companies continue to collect money at the expense of students.
While $1 billion is a menial sum to the federal government, it could change the lives of thousands of students. If the money was given directly to students via Federal Pell grants or similar programs, it would serve its true purpose.
