Wednesday, July 20, 2005

Student Loan Loophole

Not only do student loans cost students billions to pay back, the federally subsidized program is designed in a sort of confusing, ramshackle way so that lenders can exploit it to reap billions in profit. On Monday, the Washington Post wrote an editorial about the closing of one stubborn loophole:

In principle, Congress shut down this scam -- which allows lenders to use an outdated law that guaranteed them 9.5 percent interest rates -- last year. But in practice, payments to student loan companies holding 9.5 percent interest loans have continued to expand, thanks to a process known as "recycling," which keeps the old interest rate in play. According to, which watches the numbers carefully, the costs to the taxpayer of the "recycled" loans in 2005 were slated to exceed that of 2004.

That cost is nearly $1 billion a year, Student Loan Watch says.

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