Saturday, March 10, 2007

What do Ted Kennedy and President Bush have in common?

The Cleveland Plain Dealer's Steve Koff did a big piece this week on the changing political landscape for student lenders. Koff wrote another excellent story in 2005 about Sallie Mae and then House Education Committee Chairman John Boehner that's worth a reread.

Koff writes:

What do Ted Kennedy and President Bush have in common?

Both are making the multibillion-dollar student loan industry incredibly nervous.

Both want to slice the taxpayer subsidies the industry enjoys - subsidies that make student loans "the second most profitable business for banks, after credit cards," says Kennedy.

Both say students will benefit.
The President's call for a cut to the subsidies of private student banks in his 2008 Budget may well be the most significant proposal in his entire budget.

"It's a different game today," said Michael Dannenberg, director of education policy at a Washington think tank, the New America Foundation, and a former education adviser to Kennedy, who chairs the Senate education committee. "Not just because there's a Democratically controlled Congress, but because they've been triangulated by the president."
It is no secret that the federal government could more efficiently use its education tax dollars to help students. The lenders are gearing up for a major fight this year, likely retaining new lobby firms, media spokespeople and preparing for a new onslaught of campaign contributions. 2007 could look a lot like 1993 when then President Clinton proposed major reform to the loan programs that created Direct Student Lending.


Anonymous said...

What do the senator and president have in common? Both are playing politics with a student loan program.

"A narrow-margin business," that's what Standard & Poor's analyst Stuart Plesser called student loans.

Even if loans are as profitable as Kennedy says they are, and they're not, so what? Students do better than if they borrowed from the Education Department. Students save thousands of dollars from lower interest rates and lower upfront fees.

Anya said...

While I agree with his first sentence (of course it's all politics) I just want to point out that "anonymous" here is obviously a partisan (if not employee) of the lending industry.

Guaranteed student loans are incredibly profitable, and everyone knows it. Interest rates on Direct Loans and lenders' student loans are the same in most cases. Moreover, the Direct Loan program offers students less punitive repayment terms and a much saner Income Contingent Repayment plan with 25-year cancellation, both of which are potentially worth much more than any banks' incentive discounts.

Anonymous said...

You seem to approve of the idea that "of course it's all politics." Don't students deserve better than that? Is what you write "all politics"?

Saying guaranteed loans are incredibly profitable doesn't make them so. And everyone doesn't think so, beginning with Standard & Poors.

It's not true that interest rates are the same in "most" cases. Even if you were right, students at FFELP schools have the ability to shop around for better rates and lower upfront fees.

Why is is so hard for you to accept that borrowers do better in FFELP?

Anya said...

One definition of politics consists of making policies that are attractive to voters. Making college more affordable is one of those policies. It has been attractive to Democrats like Kennedy for a long time and has recently become more attractive to Republicans because of increasing awareness.
Why is it so hard for YOU to admit that you obviously work for the student loan industry?

Anonymous said...

Hey have you seen what My Rich Uncle did with the Princeton Review? Pretty slick - they made it look like every college in America picked MRU as their preferred lender!