A Powerful Method To Reduce Student Loan Debt Is Being Blocked

…and this time, by my very own party.

Shame on these Republicans, this is certainly not the conservative thing to do:

While homeowners can refinance their mortgages as often as they want and relieve themselves of high-interest debt when rates cycle downward, student and former-student debtors are only permitted to refinance once for the lifetime of the loan! And now the House is considering legislation that would stop students who are in school from keeping their current interest rate of 4.75 percent and would instead force them to pay 7.9 percent, creating a lifetime burden entirely unjustified by the lending market.

Many students are locked into rates that approach 9 or 10 percent, reminders of the grim economic days of the early 1980s, and find themselves with no flexibility. Frequently, students use their once-only refinancing option shortly after graduation and find themselves helpless as the market interest rates drop ever lower.

Home-mortgage refinancing, often similarly guaranteed by Fannie Mae, has become a huge industry and has given many families alternatives to bankruptcy as they face huge debt burdens. But student loan refinancing — beyond the one shot now permitted — is blocked by special-interest regulation and legislation.

The legislative efforts by special interests reflect the power of the once quasi-public body Sallie Mae (Student Loan Marketing Association), which has now cut off all connection with the government and instead become a profit-making company unrelated to the government called the SLM Corp.

With a 25 percent share of the student loan market — more than six times that of its rivals — SLM has cashed in on federal guarantees against defaults on the one hand and blocked student refinancing on the other. As a result, according to columnist Terry Savage, writing for thestreet.com, SLM has made a profit of 1 percent over its loan volume of $100 billion — $1 billion in profit!

Since student loans constitute one-quarter of all outstanding loans, SLM has huge market power that it has not hesitated to translate into political clout through campaign contributions that water and nourish the Republicans who control the legislative process. In all, the SLM PAC contributed almost $140,000 to the members of the House Education and the Workforce Committee to lock in their preferential treatment.

Once SLM abandoned its federal charter and went into business for itself, this public-private hybrid should have lost its quasi-governmental status and been forced to compete in the private marketplace like anyone else. All regulations restricting refinancing or consolidation should be repealed. If there was ever an area in which the Republicans should effectuate their rhetoric and deregulate, this is it.

Student loans are the shackles that most young people take into the rest of their lives after leaving school. Keeping this debt hangover large and rendering it inflexible is about as anti- family a policy as you can get, forcing young people to postpone starting families because of the load of debt with which they begin life burdened. Yet it is the Democrats, led by Sen. Ted Kennedy (Mass.), who are most vociferous in battling for deregulation.


10 Responses to “A Powerful Method To Reduce Student Loan Debt Is Being Blocked”

  1. Gustavo says:

    Another reason not to pay them…jk…but for reals though I had a friend that works at a collection agency specifically for student loans..and she has to deal with doctors, lawyers and sepa que mas who don’t want to pay back their loans..crazy..

  2. Thivai says:

    Gustavo, don’t let a few examples allow you to generalize about most student loans… as a former student-in-serious-debt because I wanted a different life and as a professor that teaches poor and working class students (community/technical college) we are seeing a disturbing trend of huge debts being rung up for the privilege of getting a mediocre job down the line… there are doctors/lawyers that default… but is this the true face of student debt?

    HP, thanks for the post!

  3. oso says:

    Amazing. I’m so proud of you. And I love that phrase: “certainly not the conservative thing to do.” I’m going to start using that all the time.

  4. For some reason, I had a feeling you guys would love this post. 😉

    Btw, I’m really digging your gravatar Thivia.

  5. cindylu says:

    Actually, the default rate on student loans in the 1980s used to be really high. Apparently, some of the peopple who defaulted most were professionals (doctors!).

    From what I’ve read about the impact of coming out of school with thousands of dollars in loans is that it postpones students from starting families, buying homes, and going to graduate school.

  6. EMC says:

    So, this means I’m totally fucked for the rest of my life and will be paying off my loans along with my kids’ loans. Little Czechxicans are gonna have to be super smart to get scholarships. Haber que.

  7. Fernando says:

    Did any of you ever go to http://www.grants.gov

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  10. Angie says:

    I think the most important step is to be realistic in what you can and cannot do. I’ve seen so many first time home buyers jump into something they cannot afford only because they have big dreams.

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