[Homestead] Banks swindling students and taxpayers---who cares.

Tvoivozhd tvoivozd at infionline.net
Wed Sep 29 10:57:13 EDT 2004

Ten years ago this week, the then-new Republican Congress signed the 
"Contract With America," vowing, among other things, to do away with 
"waste, fraud and abuse." It's reassuring, at the very least, to know 
that some campaign slogans will never go away---and the waste fraud znd 
abuse will be clutched to the bosom of this Congress as something to be 
cherished and preserved..


*washingtonpost.com* <http://www.washingtonpost.com/>
*Student Loan Swindle*

By Anne Applebaum

Wednesday, September 29, 2004; Page A27

To most of us, the phrase "student loans" does not conjure an image of 
wealth or riches. Most of us think a student loan is something that 
enables someone to live on canned soup and crackers for four years while 
holding down a hamburger-flipping job and pulling all-nighters in the 
library. A student loan is for students, and most students aren't rich.

To some people, however, a student loan isn't a burden. It's a 
get-rich-quick scheme. If that sounds surprising, ponder this: Thanks to 
loopholes in the student loan system, financial institutions that lend 
to students will earn an unprecedented $1 billion over the next year. 
None of that money will go to students. All of it will go to the 
lenders, and all of it will come from you, the American taxpayer. It 
would be a scandal -- if, that is, anybody were upset about it.

Technically, it is just about possible to explain how this state of 
affairs came about. About 18 months ago, a few lenders found what they 
thought might be a loophole in a 1993 law that was supposed to phase out 
a particular kind of student loan, one that guaranteed loan providers an 
interest rate of 9.5 percent, much too high in an era of 3.5 percent 
interest rates. By mixing and matching loans, the banks thought they 
could make the amount of money earning 9.5 percent grow instead of 
shrink. Tentatively, they started sending invoices to the Department of 
Education. The Department of Education paid them. So they started 
sending more. And more.

Once you've mastered the technical explanation, however, the deeper, 
more philosophical explanations are much harder to grasp. Why, for 
example, isn't anyone in the Department of Education especially bothered 
by the waste of $1 billion? When queried, department officials say they 
thought the loopholes were legal, they thought Congress was going to 
deal with the problem, and they thought that it would take more than two 
years to change the regulations if they did it on their own. Never mind 
that a recent Government Accountability Office report concluded that the 
whole thing could have been dealt with in a simple letter, or that a 
former general counsel for the department has said that the department's 
claim of powerlessness is "without legal foundation." I asked a 
Department of Education official -- Sally L. Stroup, the assistant 
secretary for postsecondary education -- whether she didn't think a 
billion dollars, in the context of education, was a lot of money. "We 
have a $50 billion student loan program," she replied.

But if administration officials aren't bothered, shouldn't Congress 
care? Call up Capitol Hill, however, and everyone is profoundly 
uninterested. Yes, they tell you, Congress did know about the problem -- 
has known about it for ages, thank you very much -- and, yes, the 
president's budget calls for closing the loophole and, yes, Congress was 
going to fix it in a bigger education bill. The spokesman for the House 
Committee on Education and the Workforce wrote to me, annoyed: "It is a 
bit exasperating that after spending most of 2004 fighting to pass a 
bill that would permanently eliminate the 9.5% guarantee, my boss and 
other Republicans now suddenly stand accused of keeping it intact."

But the bigger bill isn't going to pass this year, and in the meantime, 
I reckon the cost of providing free money to banks runs at about 
$2,739,726 every day. A one-page amendment, or a short, crisp bill, 
would have put an end to the whole thing. But although some in Congress 
are willing to do precisely that, the Senate has just refused. Among 
other things, it seems some senators wanted to kill the loophole in a 
larger bill, so that the savings count as "credit," so that the same 
amount of money could be spent elsewhere without anyone complaining. If 
that sounds overly complicated, that's because it is.

I could find deeper conspiracies here, of course. I could note, for 
example, that the student loan industry has contributed about $750,000 
to the 49 Republican and Democratic members of the House education 
committee in the past 18 months. But the more I know about this story, 
the more I think it's explained not by a conspiracy but by a mentality. 
Just as it's naive to think that "student loans" means "helping 
students," so too is it naive to think that a billion dollars of federal 
education money means new libraries and lots of books. A billion dollars 
in Washington -- what's a billion dollars in Washington? Washington has 
a different perspective. After all, we in Washington spend a lot of time 
talking about the $2.4 trillion budget and the $3 trillion that will be 
spent on Medicare over the next 10 years. A billion dollars is petty 
cash here; a billion dollars is a rounding error in the budget 
calculations. Only hicks and neophytes worry about a billion dollars, 
and anyway this is an election year and nobody wants to talk about such 
dull matters as student loan legislation, when they could be out 
crusading against big government or the budget deficit. Ten years ago 
this week, the then-new Republican Congress signed the "Contract With 
America," vowing, among other things, to do away with "waste, fraud and 
abuse." It's reassuring, at the very least, to know that some campaign 
slogans will never go away.

/applebaumanne at washpost.com/ <http://applebaumanne@washpost.com>

© 2004 The Washington Post Company

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