Bank on students, not execs

Molly M. Claflin is a recent graduate of Stanford Law School.

Congress is considering what may be one of its most important pieces of legislation this year: whether to take the student loan program away from private banks and shift it to an existing government program. The House passed the bill Thursday, and the Senate could take it up as early as this week. It’s the first step toward reforming how students pay for college. And in this troubled economy, students are the best investment the government can make.

Two-thirds of today’s college students rely on loans to fund their education, according to the Department of Education. As the cost of college rises and interest rates creep up, everyone has suffered.

Everyone but the lenders.

The lenders are large for-profit companies that, under the current system, act as middlemen for student loans. But the government provides the money and assumes all the risk by guaranteeing the loans; the lenders broker the deal and make all the profit. The largest student lender, Sallie Mae, boasted an astounding 1,900% return on its stock between 1995 and 2005 and paid its executives hundreds of millions in bonuses.

Or, to be more accurate, I and thousands of other students actually paid the Sallie Mae executives -- in interest on our college loans.

Currently, students can get low-interest loans from a federal program or from a bank. The proposal in Congress would take the program out of the hands of for-profit lenders. The huge subsidies -- now being used to pad the pockets of bank executives -- would instead fund more government loans.


The Congressional Budget Office estimates that the plan would save the government $87 billion in subsidies over the next decade. Just think of what $87 billion could do, if reinvested in students. The proposal also would block a scheduled increase in the loan rates to 6.8% in 2012 from 3.4% in 2011. The bill would allocate $40 billion of the money saved to government Pell Grants, which benefit low-income students. The maximum annual grant would go up -- to $6,900 by 2019 from $5,450 in 2010.

If Congress helps more students afford college, more could go on to invent the next supercomputer, write the great American novel, cure cancer or solve the climate change crisis. We’re already working on all of these issues, but we need the government’s help to succeed.

The private lending companies argue that cutting out banks could result in more lost jobs. But the number of loan officer jobs that might be eliminated is far outweighed by the thousands of new jobs that could be created when you help more students go to college, thrive and start their own companies.

The lenders even have the audacity to argue that cutting out the banks takes away an important revenue stream at a time when they’re already hurting. This is exactly the problem with the current system: It puts the lenders before students.

One of the largest lenders, Citibank, has received billions in bailout money, yet the bank is making huge profits on loans to students struggling to pay monthly bills.

Take away the subsidies to the for-profit lenders and their profit margins and it will mean more money available for students. Then maybe more of us could answer President Obama’s call to service; to skip the private sector and instead focus on serving our communities -- often the reason many of us went to college in the first place. More could practice public interest law and help secure the rights of the poor, or practice medicine in underserved, rural communities. More could return to the classroom to help the next generation succeed.

It’s hard to save the world when you know that all of your hard work is going to pay for some executive’s bonus. Reforming the student loan system creates a snowball effect. By helping finance a student’s education, the government helps that student embark on a successful career. Years down the line, that student will be able to buy a house, a car or a business. And long term, it will build a nation of educated, career-minded and socially minded citizens who can help create a better future while paying into Social Security and the tax system. As I make my transition from classroom to community, I understand that I owe a debt to society. I appreciate the opportunities I’ve been given and the loans that helped me afford them. But student loans shouldn’t be a Wall Street business venture. They represent the struggles and dreams of millions of families to help the next generation succeed. They provide hope, encouragement and a chance to focus on the huge challenges before us.

The money you invest in us will be returned in the form of a better world. Just give us a chance.