200,000-plus Tennessee Students To Be Overcharged On Student Loans

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The Obama Administration’s philosophy seems to be: “If you can find it in the Yellow Pages, the government ought to be doing it.”

While health-care reform occupies the spotlight, the Obama administration is pushing for another Washington takeover—this time of the student loan system. And here’s something you probably haven’t heard: this takeover of student loans will help pay for the Democrats’ health care bill.

A preliminary CBO estimate released on March 18th indicates that not only will the health care bill cut Medicare, raise taxes, raise individual premiums for millions of Americans, and send to states big new costs that likely will require state tax increases. It will also overcharge 19 million students on their student loans—as I said, to help pay for the Democrats’ health care bill.

This is how it will work: the federal government will borrow money at 2.8 percent and then lend it to students at 6.8 percent—spending the difference on health care and new government programs. In Tennessee, more than 200,000 students have student loans, so what this latest takeover means is that those Tennessee students will, on average, pay $1,700-1,800 more in interest over 10 years—to fund the Democrats’ health care bill, instead of using that money to reduce college costs for students. According to the preliminary CBO estimate, the new bill will take $9.1 billion over 10 years from students’ interest payments to pay for this health care takeover.

This latest Washington takeover would deprive 15 million students – who voted with their feet and chose private instead of direct loans last year – of choosing among 2,000 community lenders and nonprofits. Washington will throw out of work 31,000 Americans who are now helping students apply for loans. They'll replace these lenders with the equivalent of four federal call centers, making the process of getting their loans about as friendly as going to the Department of Motor Vehicles for a driver’s license. And Washington will do this by adding half a trillion dollars to the federal debt – and worst of all, by overcharging students for their loans.

Today, roughly 2,000 lenders offer government-backed student loans on more than 4,000 campuses. One lender, Edsouth, offers Tennessee students college and career counselors, financial-aid training, and college-admissions assistance; performs hundreds of presentations at Tennessee schools; and works with 12,000 Tennessee students to improve their understanding of the college-admissions and financial-aid process.

If this latest Washington takeover goes through, Edsouth and other nonprofit lenders will no longer be able to provide these services, depriving students of real choices in lending.

The student loan "Banker of the Year" will be the only student loan banker left: the education secretary in Washington. Imagine trying to get all Edsouth's services from a federal call center.

I was education secretary for President George H.W. Bush when, in 1991, Congress offered students a choice to borrow from a local lender or the Education Department. In 2008, 15 million students chose nongovernment lenders—and only 4 million students chose to get their loans from Washington.

If this Washington takeover happens, I propose that all 19 million-plus student loans made by the government carry this warning label: "Beware: Your federal government is overcharging you so your representative can take credit for health care and more government programs. Enjoy the extra hours you work to pay off your student loan."
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March 21, 2010 at 4:43pm
The average private loan currently carries an interest rate of 12%.

That's from http://www.forbes.com/2009/04/22/student-loans-moneybuilder-personal-finance-loans.html

6.8% is nearly half the average interest rate charged on private student loans.
March 21, 2010 at 8:27pm
We aren't talking about private loans, current Student Loan Fixed Rates are 5.6%, but after this new bill it will be 6.8% to save students money?

Please get your facts straight.


Stafford Loan Interest Rates
Note: Graduate Stafford Loans (both subsidized and unsubsidized) have a fixed interest rate of 6.8% through 2013.

Academic Year Subsidized Rates
2009-10 5.60%
2010-11 4.50%
2011-12 3.40%
2012-13 6.80%
Current Stafford Loan interest rates in effect from 07/01/2010 to 06/30/2011
March 22, 2010 at 12:44pm
Still not close to "overcharging" as Senator Alexander puts it when it's nearly half of the market rate.

The federal government already backs all loans made by edsouth, etc. It is an expensive and indirect route.

There a number of other reforms happening with federal student loans including a cap on monthly payments at 10% of income, generous tax credits for families who support students, and loan forgiveness after 10 years for students who enter public service.

You're missing the forest for the trees as they say.
March 22, 2010 at 7:30pm
I don't understand how raising the interest rate for student loans so that students have to pay more interest is helping students?
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