It doesn’t garner much in the way of headlines, but as part of their health care reform bill, Congressional Democrats included a change to the federal student loan program that removed billions in senseless subsidies that were given to banks to originate federal loans. Under the old program, taxpayers actually paid banks to originate these loans, letting them take a chunk out of a pot of money meant for students. The reforms — championed by the Obama administration — allowed billions to be plowed back into the Pell Grant program, giving it directly to students.
Last night, Washington Republican senate nominee Dino Rossi sang the praises of student loans, which enabled him to go to college. However, he then came out against the student loan reforms passed by the current Congress, calling for bankers to be put back in between students and their federal loans:
You know, part of the takeover of government has been part of the student loans. So now you have to go to government. Having many banks and many other options for you to go to makes more sense. I’d like to see every student have options in front of them. I had options. Students should have options. Parents need to have options. Unfortunately, the options are getting limited because of government control.
First off, you don’t “have to go to the government” to get a student loan. That talking point is a favorite of the banking industry, which was constantly deployed during the student loan reform debate. But private student loan programs still exist. Want a student loan from Citigroup? Go here. Prefer Bank of America? Here you go.
What the student loan reform passed by the Congress did was cut private lenders out of the federal loan business, so taxpayer money is no longer being wasted on bank middlemen (who we still pay to service federal loans). Not only does this change make more money available to students, but it will also inject $100 billion into the economy through the additional expected lifetime earnings of students who gained new access to Pell Grants.
You’d think a self-styled fiscal conservative would applaud the government removing senseless corporate subsidies and instead spending the money on students who actually need it. But Rossi evidently thinks its the height of fiscal responsibility to let banks leach off a federal program and take funding out of students’ pockets for their trouble.