President Obama is behind a bill that will end the practice of private lenders who loan to students of making large and unjustified profits for originating and servicing these loans with tax payers’ dollars. The government gives access to those banks to encourage risk-free loans for education. Unfortunately, not only do banks make money from their handling the loans, but they also sell the loans back to the government for their own profit.
Tama Lewin writes for The New York Times that the bill which would extend the government’s own direct loan program may be in danger. In order to pass the health care reform, all other programs that may increase any government debt may be stalled for months or be killed. Banks like Sallie Mae have lobbied strongly against this legislation, and senators from states that have banking constituencies in the student lending business have signed a letter to discourage its passage. The following senators, who are Democrats, are the signees: Thomas Carper from Delaware, Blanche Lincoln from Arkansas, Ben Nelson of Nebraska, Bill Nelson of Florida, and Mark Warner and Jim Webb, both of Virginia. These senators say they are afraid the people of their state will lose jobs, but direct government leaning would still need people to administer the loans.
The question is whether or not money loaned through the taxpayers for education should mean big profit for private banks.