Apr 16, 2007
In a legal settlement, the largest U.S. student loan company agreed to stop giving “incentives” to colleges in exchange for steering students to the company. SLM Corporation also agreed to pay two million dollars into a financial aid education fund set up by the New York Attorney General’s office.
Needless to say, two million dollars is not even a drop in the bucket for SLM, which is the largest company in the 85-billion-dollar student loan industry, and one of the most profitable companies in the country. The business couldn’t be more lucrative: not only does the federal government guarantee the repayment of any loan that is in default, it also guarantees these private lenders a profit on any student loan they make!
The so-called “student loan scandal” has so far revealed widespread corruption in the student loan system. The whole system is set up in such a way that invites corruption. When students apply for loans, colleges give them “preferred lender” lists, from which 90% of the students choose their lenders.
The federal government runs its own direct loan program for students, subsidized at a much lower cost. According to the Center for American Progress, the government could have saved 37 billion dollars between 1992 and 2005 if it had issued all student loans directly.
That’s 37 billion dollars of taxpayer money, and counting. That money could be used to pay college tuition for tens of thousands of working-class youth who face an impossible choice: giving up on a college education or graduating with tens of thousands of dollars of debt.
No, the politicians prefer to funnel all those billions of dollars into the pockets of their buddies, the bankers.
That’s the real scandal.