Kill the FFEL

This post was written by ex-Nation intern and freelance writer Corbin Hiar.

One important policy issue that has been knocked down the legislative agenda by all the discussion regarding healthcare reform and the financial and auto bailouts is the urgent need to reform the higher education loan and financial aid systems.

The system is clearly broken. Student loans should create opportunities for the young, not cripple them for life. As Act Now! detailed in April, the proposal laid out in President Obama's ambitious budget could power up the Pell Grant program sufficiently to make a real difference. In addition to protecting Pell Grant scholarships from politicized annual funding debates, President Obama's higher education budget proposal seeks to increase government loan origination through the highly successful Direct Loan Program and end the sweetheart subsidies the private student loan industry currently enjoys via the wasteful Federal Family Education Loan (FFEL) Program.

In a recent column, Gail Collins of the New York Times described the present system as "something like this:

¶We the taxpayers pay the banks to make loans to students.
¶We the taxpayers then guarantee the loans so the banks won't lose money if the students don't pay.
¶We the taxpayers then buy back the loans from the banks so they can make more loans to students, for which we will then pay them more rewards."

Beefing up the government's Direct Loan Program and killing off the FFEL corporate cash cow could add an estimated $94 billion in black ink to the government's budget over the next decade--money that would make the establishment of a Pell Grant entitlement financially viable. Any additional savings could also go to increasing the availability of subsidized Perkins Loans or other measures to expand access to higher education.

As the website Inside Higher Ed noted in a worrying piece published after a House Education and Labor Committee hearing in May, Congressional aides "sent conflicting signals about how locked in the panel is to the Obama proposal." Discredited private lenders, who were caught colluding with university financial aid advisors in 2007, are now working (and paying) behind the scenes to encourage swing Democrats like Ben Nelson, in whose state reform opponent Nelnet is headquartered, to weaken the administration's proposal and preserve FFEL under the deceptive banner of "choice." Clearly, the finance industry will not give up its lucrative subsidies without a fight--as Collins observed, "Hell hath no fury like a middleman scorned."

"President Obama has spoken of our nation's responsibility to 'make sure that people who have the grades, the desire and the will, but not the money, can still get the best education possible,'" as the Nation's lead editorial noted this week. "He has proposed a modest but elegant plan to get us on track toward that goal."

Please join The Nation in supporting the higher education reforms laid out in President Obama's budget proposal by clicking here to ask your elected reps to support President Obama's higher education budget proposal.

Comments (9)

1. Oddly, I'm betting our Right-wing friends will step up to defend the banks....despite no real cost-effective benefit for keeping the system as is.

   Posted by Mask at 06/15/2009 @ 12:22pm

2. Oddly, I'm betting our Right-wing friends will step up to defend the banks....despite no real cost-effective benefit for keeping the system as is.

   Posted by Mask at 06/15/2009 @ 12:22pm

   Wrong...what we need to do is end all Federal involvement with College level student loan programs. this is not something the Federal govt should have any involvement with.

   Posted by antisocialist at 06/15/2009 @ 12:33pm

3. Yep, anti is spot on again. I say let us return to the pre-New Deal education levels.I think that is about 6-7 years per person.

   And, if states wish to prevent certain groups from partaking of the new/old private education system, well that is what the Founders wanted.

   Who cares if we can show that federally run programs help educate our populace? It Shall not Be Done!!!

   Posted by crabwalk at 06/15/2009 @ 1:07pm

4. Posted by antisocialist at 06/15/2009 @ 12:33pm

   Of COURSE, that comes from YOU, Larry.

   I was referring to the Right-Wingers who haven't quite reached the "I think 10 year olds working in un-regulated coal mines is just fine" level yet.

   William Polk on Afghanistan posted by Katrina vanden Heuvel on 03/26/2009 @ 12:09pm

   Posted by Mask at 06/15/2009 @ 1:18pm

5. Legacy students only & superhumans like the Obamas & Sotomayor. Let the rest fight each other for the job crumbs that are left. Join the military, earn your keep, all you proles. The empire will prevail.

   Posted by sloper at 06/15/2009 @ 1:55pm

6. Of COURSE, that comes from YOU, Larry.

   I was referring to the Right-Wingers who haven't quite reached the "I think 10 year olds working in un-regulated coal mines is just fine" level yet.

   William Polk on Afghanistan posted by Katrina vanden Heuvel on 03/26/2009 @ 12:09pm

   Posted by Mask at 06/15/2009 @ 1:18pm

   So you leftists actually believe that the only way someone can go to college is if the Federal govt is involved in loaning them the money?

   Posted by antisocialist at 06/15/2009 @ 2:16pm

7. Rebubs say let the ten year olds work a full day in the coal mines & attend night school.

   This accomplishes a number of goals from reducing the demand for wage increases to less pleas for greater safety measures.

   Company towns can start paying them script good for play stations & generic candy corn. Scholarships available for selected institutions of "higher" learning.

   Let's all join the "piece(work) train."

   Posted by Sorelish at 06/15/2009 @ 2:45pm

8. This accomplishes a number of goals from reducing the demand for wage increases to less pleas for greater safety measures.

   fewer pleas. (sorry)

   Posted by emile duBois at 06/16/2009 @ 12:16pm

9. Re: "Student loans should create opportunities for the young, not cripple them for life." I agree completely. However, eliminating FFELP will not accomplish anything positive. It WILL ELIMINATE 35,000 jobs nationwide, ELIMINATE state and local outreach and financial literacy services, AND keep Sallie Mae (for profit and the worst part of FFELP) around as a Direct Lending servicer.

   Posted by Bomboski at 06/17/2009 @ 1:46pm