Hitting all of the usual sweet spots—defense, Medicare, Social Security—President Bush’s latest budget also takes a small but important step towards fixing a problem inhibiting fair student lending: private lending companies. Bush cut out $18 billion of lender subsidies, the largest student loan company subsidy cut ever proposed by a Republican president, to increase funding for Pell Grants. Now, it’s been revealed that Al Lord, chairman of Sallie Mae, the largest student loan lending corporation, sold 400,000 shares of his company’s stock a week before Bush unveiled his new budget. The Voice recently advocated ending the private lending system and replacing it with direct government lending. This possible insider trading scandal is further proof that this reform is important.
Insider trading isn’t the only problem facing the lending system. New York Attorney General Andrew Cuomo recently began investigating what incentives student lenders offer to administrators at universities and colleges in order to be put on preferred lender lists for students. College administrators get perks, and companies like Sallie Mae get the security of being a university lender. Because of the lack of free competition, students suffer from inflated interest rates. Georgetown isn’t guilty of this—it recommends the lenders with the best rates—but many universities are, and a lot of Georgetown students will be applying to graduate schools one day.
By selling his stock when he did, Lord dodged a 9 percent plummet of Sallie Mae’s stock in what appears to be insider trading. As the leader of a business, Lord acts in its best interest (and sometimes his own), but not in the interest of students.
More than 55 percent of undergraduates at Georgetown receive some form of financial aid, and the inefficiency of the student lending system directly hurts all of them. The president deflated the padding of the private loan company’s pockets, but the private lenders should be fired all together, which would end wasteful subsidies and cut out sleazy middlemen.
