This Wednesday, the House passed a bill to regulate the relationship between private loan lenders and student loan officers. The bill, which passed by a 414-3 vote, requires new codes of conduct and bans gifts and payments from lenders to colleges in return for a position on “preferred lender” lists. The bill is largely seen as a progressive attempt to clean up the $85 billion student loan industry.
The effort by the House is commendable, as it seeks to correct the serious moral failure of college loan officers and private lenders by exchanging gifts and payments.
The bill, however, neglects other underlying failures of the student loan system, which must also be addressed.
Firstly, federal, state, and university financial programs have failed to provide financial options for students.
The bill passed in the House is testament to the increased pressence of private lenders in the student loan market. The reformed code of conduct for college-lender relationships will decrease the likelihood that a current college student will sign for a private loan with a 12% variable interest rate from a so-called ‘preferred lender’ when a 6% fixed interest rate is available elsewhere. Admittedly, these savings could be substantial if the loan in question is large. The underlying reality, then, is that the current college student is in need of large supplimentary loans from private lenders.
The best way to provide more savings to more students, however, would be to increase the availability of scholarships, grants, and fixed low-interest loans. The House should refocus its reform efforts on the Pell Grant, the Perkins, and the Stafford Loans.
Secondly, the ongoing failure to care for and aid those students who are enrolled in college fuels an ongoing failure to increase aid and access for those students who are excluded from college.
The reforms mandated by the House bill might improve financial options for students who take out private loans. Such reforms, however, only aid students who are credit worthy. There is still no aid available to college hopefuls from lower income families that do not qualify for private loans. These students will remain excluded from financial assistance and thus excluded from access to college. Further reform of the loan system, such as a credit-blind program backed by the federal government, is necessary in order for financial aid to become available to those students who need it most.
Finally, the House bill reflects a failure on the part of the federal government and the Department of Education to oversee the student loan program and to intervene in defense of student interests.
To this end, Theresa S. Shaw, the Education Department official responsible for overseeing the loan program, has resigned and Secretary of Education Margaret Spellings will testify to a Congressional committee today to answer questions about oversight of the student loan program.
I, for one, am itching to hear her answers.
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