|
Washington, D.C. –The U.S. House of Representatives overwhelmingly passed Congressman Dale E. Kildee’s (D-MI) amendment today to the Labor-HHS Appropriations Bill to close a loophole in the law that gives nearly $1 billion annually in federal subsidies to banks that provide loans to students. Kildee’s amendment, which passed by a vote of 413-3, closes the regulatory loophole which the Bush Department of Education has permitted to go unchecked. Last month, Congressman Kildee asked the Department of Education to fix this loophole by regulation, but they had failed to do so. While students struggle to pay their college tuition, the federal government continues to line the pockets of certain lenders by subsidizing extraordinarily high interest rates on student loans.
"Instead of giving unjustified and excessive subsidies to lenders, we should be subsidizing our students directly by increasing student loan programs and Pell Grants so that more students can afford to go to college,” said Kildee. “As tuition continues to skyrocket, the Administration and Congress have done virtually nothing to alleviate the financial burdens of college students. It is a shame that the Administration would rather pay nearly a billion dollars in outrageously high subsidies to our nation's biggest lenders instead of using that money to help make college more affordable and accessible for millions of students."
As the ranking member on the Higher Education Subcommittee, Congressman Kildee led the effort to expose this controversy by requesting a study by the Government Accountability Office (GAO). According to the preliminary findings of the GAO study, a small number of banks that provide student loans will receive almost $1 billion in profits this year from an unintended federal subsidy.
The subsidy results from a federal guarantee to the banks of a 9.5% rate of return on certain student loans. On traditional student loans, banks are guaranteed only a 3.6% rate of return, which means that the government subsidizes only two tenths of one percent compared to 6% under the 9.5% loan program.
Obviously, student loan companies are lining up to take advantage of this loophole at taxpayer expense. In FY 2001, the 9.5% guarantee cost American taxpayers approximately $200 million, but the GAO study projected that the cost in this current fiscal year is likely to be nearly five times greater. Under this program, loan volume has increased by $2.1 billion between FY 03 and FY 04. The GAO report estimates that on top of this year’s near billion dollar cost, growth in the special subsidy will cost an additional $2.8 billion in future years, if not halted immediately. |
