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Congress Votes to End Corporate Loan-Sharking of Students

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This is very good news:

Ending one of the fiercest lobbying fights in Washington, Congress voted Thursday to force commercial banks out of the federal student loan market, cutting off billions of dollars in profits in a sweeping restructuring of financial-aid programs and redirecting most of the money to new education initiatives.

Since the bank-based loan program began in 1965, commercial banks like Sallie Mae and Nelnet have received guaranteed federal subsidies to lend money to students, with the government assuming nearly all the risk. Democrats have long denounced the program, saying it fattened the bottom line for banks at the expense of students and taxpayers.

Like most (if not all) of President Obama’s initiatives, this remains a half-measure, but it is all the more heartening because it indicates at least that our lawmakers are aware of the massive unsecured debts we oblige college student to shoulder.

Supporters of the existing loan-shark industry decry the measure as another ‘government takeover’, but I think those accusations can be dismissed with the same dearth of thought that went into them. Significantly, the bill reduces the mandatory service of these loans from 15% to 10%, and it provides for more direct loans from the government (whose rates are sure to be more favorable compared with that of private banks). The existing system, wherein the government subsidizes banks like Sallie Mae who then use those subsidies to gouge students with usurious rates, was fair to no one but the financiers.

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Written by pavanvan

March 26, 2010 at 2:21 pm

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