Federally guaranteed student loans are supposed to help students afford higher education at rates they can afford. Lenders like Sallie Mae provide the loans at low rates, and in return the government guarantees repayment of the loans and provides subsidies to the private companies who give out the loans. The system is supposed to provide incentive for private companies to help students, and it does. It's been working a little too well, in fact. If you run the numbers on the loans, their costs to the private companies, and how much taxpayer money is given to those private companies, the current system is backwards in that it does more for the companies than students.
Senator Kennedy has been a leader in the creation of the Student Aid Reward (STAR) Act. This Act would require the Secretary of Education to determine which of the two loan programs is more efficient in a given year, and then reward schools that use the more efficient system with more aid money. That would mean an extra $17.25 billion dollars in student aid over the next ten years at no cost to taxpayers.
How? Funds that would normally go to Sallie Mae and other loan companies would instead go directly to the students. This saves $11 per $100 loaned, resulting in billions more for student aid without any additional cost to taxpayers.
Sallie Mae is the second most profitable company in the Fortune 500. The company had revenue returns of 36.9% in 2003 - the median return for companies in the Fortune 500 for 2003 was 4.6%. Sallie Mae isn't just doing well - they are making a killing, and with money that could be invested in students. With enactment of the STAR Act, every Pell Grant recipient could receive an additional $600 in grant aid a year, six times the increase proposed in the FY06 budget.
The Cleveland Plain Dealer explains how the system works, and why there is dispute over the funding of the loans.
Currently, there are two types of loans: the Federal Family Education Loan (FFEL) and Direct Loan (DL) programs. The FFEL is built around companies like Sallie Mae - the government essentially pays companies to provide low-interest loans to students. Direct loans are issued directly to students and are cheaper for two reasons - no payments to loan companies like Sallie Mae, and lower administrative costs.
A new report released today by the American Association of Collegiate Registrars and Admissions Officers, the State Public Interest Research Groups' Higher Education Project and the U.S. Student Association details how inefficient the current system of student loans is, and details how much more schools would receive under the Direct Loan program. You can read about it here - it details how much of a boost each state would get from the STAR Act, as well as by individual school. The STAR Act, which has bipartisan sponsorship in both the House and Senate, would put taxpayer money allocated for education to much better use - it would go to students and not companies like Sallie Mae.
I don't know about you, but I am tired of working Americans getting squeezed while corporate America runs away with even more government money. The Bankruptcy Bill that passed earlier this year was written with the interests of corporate America in mind, and the current asbestos legislation in committee is being shaped in the interests of the companies responsible for the suffering of asbestos victims. The STAR Act is an opportunity to put the interests of America's students ahead of corporate America, and to do something great for our future with no additional burden to taxpayers.
If you are interested in learning more about the STAR Act and student loans, check out Student Aid Action or The Institute for College Access and Success. Encourage your Senators and Congressmen to cosponsor the Student Aid Reward Act. Call 202-224-3121 and ask the Capitol Operator to connect you to your Senator's office.
Support Senator Kennedy in his work for America's students!
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crystal@tedkennedy.com