Student Loans and Healthcare- Strange Bedfellows?

Just yesterday on March 12, 2010, in the heat of the healthcare debate, the U.S. Senate has proposed the idea of combining the proposed healthcare bill with the student loans bill, or SAFRA (Student Aid and Fiscal Responsibility Act) that was passed by the U.S. House of Representatives last September. This bill basically cuts out private student lending companies from the federal student loan process. Loans would be made directly

through the government through the financial aid offices of colleges and universities.

This practice has been going on for over 10 years, as the direct loan program, as it is called, was instituted in the Clinton administration. Student loan company lobbyists, a formidable group with deep pockets that certain congressmen seem to find useful and attractive, have kept the private companies in the picture. After all this time it is clear that the government would save billions of dollars by passing the SAFRA bill. In fact data shows that for every $100 in student loans that go through the private loan companies, the government pays $12.09 to the private lenders. In contrast the government pays just $0.84 for every $100 that is lent directly by the government. These statistics come from the book “Generation Debt” by Anya Kamenetz. The government has been basically giving away billions to the student loan companies. It is not the subject of this article to explain how the student loan company lobbyists have managed to convince Congress to keep bilking the American taxpayer, but one wonders.

It looks like the SAFRA bill might die in the Senate if it is not combined with the health care bill because the Republicans will filibuster and bury the bill. Senators with large concentrations of student loan companies in their states are afraid of losing jobs, never mind that the taxpayer is being ripped off to support these “jobs”. It sounds a little like the airplane program that was brought up last year. There is some military airplane being produced that has no mission, is no good for anything, and the military bluntly says it does not want the planes, but of course Congress keeps funding them so as not to lose “jobs”. So bilking the American taxpayer in the name of preserving “jobs” is nothing new to Congress. And what does it matter if they don’t have the money? They just print or borrow more and run up the national deficit.

While the SAFRA bill makes sense, what it doesn’t address are the millions of student loan borrowers who are already suffering greatly from too much student loan debt. These same student loan companies with their army of lobbyists have effectively convinced Congress to exclude student loan debt from being released in bankruptcy as is the case for other kinds of debt like gambling and credit card debt, for example. Once a borrower gets caught in the trap of defaulting on student loans they are hit with huge penalties, and it is not unusual to see the amount they owe be double or triple what they originally borrowed. An example in the news recently was a 41 year old doctor who borrowed $250,000 to finance medical school, and she now owes $555,000 despite making payments for years. How this can occur is the subject for other articles, but the example of how the student loan companies prey on some student borrowers is worth noting. Just note that student loan companies make far more money on loans that default than they do on loans that are paid regularly.

It a shame that the student loans bill, SAFRA, must be combined with the unpopular healthcare bill that the Democrats and President Obama are desperate to pass, but those are the ways of Washington.