WASHINGTON—By a vote
of 15 to 14, the Senate Appropriations Committee today failed to pass an amendment
to the Labor, Health and Human Services and Education Appropriations bill to
end a taxpayer rip-off and direct the savings to struggling college students.
The amendment, introduced by Senator Murray (WA), would have saved taxpayers
$290 million in excessive lender profit on student loans, and redirected it
to nearly one million college students.
The amendment would have
closed a loophole that allows student loan companies to earn 9.5 percent interest
rate returns from the government by temporarily financing loans with pre-1993
tax-exempt bonds. The loophole permits lenders to increase their government-subsidized
interest payments on risk-free, guaranteed loans by up to six percent. Government
payments on 9.5 percent loans have doubled in the last 18 months.
"Congress established
the 9.5 percent provisions to ensure that every student could access loans for
college, not to allow private lenders to rip off taxpayers and divert much needed
funds from student grant programs," explains Jasmine Harris, Legislative
Director for the United States Student Association. "We need Congress to
use the money for its intended purpose, to increase educational access."
In 1993, Congress changed
the rules governing the 9.5 percent loophole. Congress expected that pre-1993
tax-exempt bonds would eventually expire and the loophole would close by itself.
Yet through the accounting actions of lenders, and because of inaction on the
part of the Department of Education, the loophole has remained open. Moreover,
the problem is rapidly getting worse. The Department of Education has allowed
lenders to refinance old, tax-exempt bonds and continue to count them as pre-1993
bonds. Lenders are allowed to consider loans only temporarily financed by tax-exempt
bonds as qualifying for 9.5 percent interest rates. The result has been abuse
on the part of lenders. In 2003, there were $12 billion in outstanding 9.5 percent
loans. In 2004, that number shot up to $17 billion. That increase will amount
to billions of dollars in excess lender profits and lost taxpayer dollars.
Senator Murray's amendment
came on the heels of a similar amendment that passed the House of Representatives
last week. The Senate version, however, would have fully closed the 9.5 percent
loophole left open by the House, and directed the $290 million in savings to
critical student grant programs. Specifically, it would have doubled state scholarships
to $3000 for 700,000 students, provided GEAR UP college prep aid to 100,000
students and TRIO grants to 86,000 first generation students heading to college.
Opposition to the amendment
argued that the loophole should be closed during the reauthorization of the
Higher Education Act. That process, ongoing for the past two years, will not
be completed until 2005 at the earliest. "Congress cannot wait for reauthorization
to defend taxpayers and students from this student lender scam," says Luke
Swarthout, Higher Education Associate for the State PIRGs. "Unless Congress
takes action this session, lenders will continue to make excess profits at the
expense of struggling college students."
