Chris Hooley’s -ThinkBait-

I am not the type who usually talks politics. In this case, I can’t hold back. There is a reason people do not trust politicians.

• Student loan interest rates will be cut in half
• The nation will save $20-30 billion
• More free money for students
• Higher education will be accessible for more people

These sound bites are hard to resist. They sound great don’t they? Propaganda at its best convinces the masses to blindly believe ideas or concepts that they don’t even understand. In this case, it’s the bill known as HR5. Here’s a quick run down of what this bill is, how it flew under the radar, why it has so much bipartisan support, and why it is a bad, bad idea.

HR5 - The Hidden Student Loan Tax

Those who crafted HR5 see banks and student loan companies as middlemen in the federal lending program (FFELP). This part is true. Private companies receive government subsidies to get federally backed and regulated loans into the student’s hands so kids can pay for school. The main idea is to slash these subsidies to lenders, and increase fees to generate and / or hold student loans to save the government a ton of money. These “rebate fees” are essentially tax, since the government is taking a percentage of each loan already when they are created, and yearly as they are held.

The politicians who are pushing this bill don’t even understand the industry, and through their actions, they are likely to eliminate an entire industry created to help kids get money for school. Private lenders compete against each other in the free market. Because there is competition, companies must do their best earn business. The term “Student Loan Benefits” is the process by which private lenders give back money to students who borrow these federally backed and regulated loans. These benefits are often rate cuts, cash back rewards, and similar types of incentives. By adding additional fees and increasing the tax on these loans, they are making it impossible for the entire industry to offer these benefits to students any longer.

The Department of Education (D.O.E.) offers the same exact loans as private lenders, however, they do not offer incentives. The D.O.E. runs their student loan business in typical governmental bureaucratic fashion- think the DMV handling your finances and your keys to your education. If you don’t qualify or you miss a date, no service, you don’t go to school.

Student loan companies give back to the students, and also compete in terms of value add services and even on customer care. It is an industry that truly saves students a ton of money.

The government is screwing up their budget trying to fund a war, they are now pointing fingers at an industry they created, and pushing a juicy propaganda campaign to garner public support before election time. This is a democratic bill, but it even has the Bush administration’s support (because to do otherwise would be political suicide) - the sound bites are just too good.

Sound Bites Reviewed, Lies Revealed

If you look at the claims then read the bill, you see some huge glaring problems. Let’s do a quick step through and explain how these lies might really hurt our nation’s higher education system.

Student loan interest rates will be cut in half
The only student loans that have cut rates are fully subsidized Stafford loans, and the rate drop is a 0.5% drop for 7 years straight before it is reset to 6.8%. Fully subsidized means that the government pays the interest while the student is in school. Since rates on these loans are variable and reset every year, they only affect students who graduate in the golden window right before rates go back up. Think about it, the government is ONLY cutting rates on the loans it is responsible to pay for.

Furthermore, these loans are usually only attained by the lowest income level families. So to give itself a break, the government would be cutting its OWN rate temporarily. But when students graduate, they are right back into the same boat as before. Taking money from the middle class to give to the poor plays well for certain segments of voters and sounds oh so good, until you realize that over half of those who receive federal aid are not eligible for these loans. If you are middle class, you are getting screwed harder and might not be able to pay for school because of it.

The nation will save 20-30 billion
Where is this money coming from? Politicians are trying to to make it sound like the student loan companies will be paying for it, but think. If the cost of milk goes up, so does the cost of ice cream. These politicians will try to demonize private lenders if they do not continue to provide aggressive student loan benefits, but how can they? They could be put out of business, and you’ll have to trust your student financing with Uncle Sam.

More free money for students
This bill does include an increase in Pell Grants. THAT part is good, but it is a mere pittance. The increase is around $260 - enough for a book for two. This is not even CLOSE to the range of the cost they will be taxing to private lenders.

Higher education will be accessible for more people
This is a sound bite with no merit. Federal student loans are not any more or less easy to qualify for. Almost anybody can get some kind of funding and payment is not due till after graduation.

In fact, the opposite may happen. By doing an industry wide shake down and socializing an entire industry like student loans, you eliminate the only other group besides schools who are motivated to get students the funding they need. And if you put private lenders out of business, the screwjob is even worse. You can only borrow a few thousands per semester in federal student loans, and the average cost of attendance is close to 20k a year. People will NOT be able to pay for school if the industry is shaken up. Students NEED private student loans to supplement the limits on government loans. Fewer students would be able to pay for school if the FFELP lenders didn’t thrive.

Socialism or Capitalism? Who do you trust handling your student financing?

If this bill passes, the student loan industry would be crippled, leaving the Department of Education in the driver’s seat with your finances and education at stake. Get in the bread line, you are getting, bread… because there is no other choice. Imagine that, the same entity that runs the DMV handling my finance. Not only is that creepy and big brother-ish, but it is simply not the American way. Capitalism and free trade is what makes this company tick. Markets are self regulating when there is sufficient competition, and the consumer decides who best serves their needs and reinforces their choice.

Socialism, and socializing finance, is not in the best interest of students or our country. What do you think? Sounds like “The Great Student Loan Screwjob” if you ask me.