Scott Giles, president of the Vermont Student Assistance Corp., hoped that Vermont’s congressional delegation might head off initiatives in Congress that would make student loan payments increasingly burdensome for students and their parents. In a recent commentary, he noted that the federal government is actually profiting from the loans it extends to college students. Proposals in Congress would cause those profits to balloon.
Giles had strong allies in Rep. Peter Welch and Sens. Bernard Sanders and Patrick Leahy, all of whom hoped to reverse the interest rate hikes that took effect automatically when Congress failed to act before a July 1 deadline. But in a bizarre turn of events this week, the Senate approved a bill with the potential of turning student loans into the kind of teaser loans that devastated the housing market a few years ago, with interest rates that would balloon to high levels in later years.
Sanders and Leahy were having none of it. “What I don’t understand is when you have a Democratic president, a Democratically controlled U.S. Senate, why we are producing a bill which is basically a Republican bill,” Sanders said.
Leahy had supported two unsuccessful amendments to the student loan bill and was one of 17 Democrats to oppose the final bill. One of the amendments, offered by Sanders, would have allowed students to lock in lower rates for now, with rates reverting to current rates in the future. Another amendment — offered by Sens. Elizabeth Warren and Jack Reed — would have maintained a cap on interest rates at their present levels instead of allowing them to rise with the financial markets.
The bill that eventually passed the Senate included an interest rate cap of 8.25 percent for undergraduates, 9.5 percent for graduate students and 10.5 percent for parents taking out PLUS loans. Warren’s response was, characteristically, direct. “This is obscene,” she said. “Students should not be used to generate profits for the government.”
The Obama administration does not view the money it makes on student loans as profits. But whatever it is called, it amounts to $200 billion over the next 10 years. Republicans were pleased. In their eyes, gouging students for profits will help lower the federal deficit.
Giles at VSAC has particular reason for cynicism regarding the Obama administration’s efforts to fix the student loan program. When the administration cut out the middle men — banks and nonprofits such as VSAC — from the business of issuing student loans, it put the federal government directly in the student loan business. And student loans became a major profit center for the government.
VSAC by contrast had kept interest rates relatively low on the loans it had issued, believing it was in the business of providing a service rather than making money. VSAC had to scale back the services it offered after the Obama administration’s reforms. Now it’s a bitter pill for VSAC to see Congress passing legislation turning the student loan business into even more of a profit-making business rather than the sort of service whose principal aim is to broaden access to higher education.
Warren has become a national political celebrity because of her ability and willingness to say that the emperor has no clothes. For her to call the student loan profits obscene may rankle the powers that be within her own party, but it is the kind of straight talk that has won her a national reputation. Her willingness to take on the entrenched interests of Wall Street, which holds both parties in its thrall, is one reason she is frequently mentioned as a potential presidential candidate for 2016.
As for Sanders, he is in his element denouncing profiteering perpetrated at the expense of ordinary people, whether carried out by banks or the federal government. In this instance, he wasn’t able to stop it.