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The American Dream Wrecked

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Message Earl Hadley
It's graduation time. Some students have jobs locked down. Others are returning to the comforts or confines of their parents' homes. Too many students are leaving school with unmanageable loan debt. This loan burden will impact when they get married, buy a house or a car and the type of employment graduates are able to seek. The high-minded talk about following your dreams and working in a job you feel passionate about sounds nice, until you start filling out that first loan repayment slip.

Of course, not everyone is hurting from the current state of affairs of college lending. The student loan industry is doing very well, particularly its leader Sallie Mae. In a hard hitting story last week, CBS's 60 Minutes reported that over the last several years, Sallie Mae and their executives have poured $2.7 million into the campaign coffers and PAC's of Congress in an effort designed to keep the competition down and their profit margins up.

And it's working; Sallie Mae's bottom line has gone through the roof. While millions of students and parents have been struggling to find a way to pay for college, Sallie Mae has seen its stock price soar nearly 2,000 percent over the last decade, a run which has enabled their former CEO, Al Lord, to make over $200 million since 1999 - enough to attempt to buy the Washington Nationals baseball team.

Sallie Mae controls loans for more than 9 million borrowers and once Sallie Mae gets a student's account, it's usually for life. Students whose loans are all owned by Sallie Mae have always been prohibited by law from consolidating their loans with another lender when they leave school. But now, under even tougher rules just passed by the Republican controlled Congress, most everyone who consolidates their loans will be barred from refinancing again in order to get lower rates offered by other lenders.

Legally barred from refinancing? How is this possible? Just ask John Boehner, R-Ohio, the new Majority Leader of the House. At a December convention of student loan bankers, Boehner told them, "I've got enough rabbits up my sleeve to be able to get where we need to." And then, he went back to the Congress and pushed through the "no more refinancing" proposal.

Hasn't the time come for Congress to turn back Sallie Mae's army of lobbyists and repeal the restrictions on consolidation and reconsolidation that are helping to push students' interest costs, and Sallie Mae's profits, higher?

Senator Edward Kennedy of Massachusetts thinks so. In a May 11, 2006 letter to the nation's students, Senator Kennedy wrote,

"I opposed the changes Congress made in the law in February to restrict the consolidation options that borrowers now have. I'm working in Congress to reverse these changes before they take effect on July 1st, and to provide additional options to reduce the cost of student loans. Current law, for example, does not allow borrowers to "reconsolidate" -- i.e., refinance -- a consolidated student loan, but it should. Borrowers who consolidated their loans at higher interest rates in the past deserve to be able to refinance their loans again when interest rates go down, just as homeowners take advantage of lower rates by refinancing their mortgages."

Let's hope that the rest of Congress listens to the Senator.
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Earl Hadley is the education coordinator for the Campaign for America's Future.
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The American Dream Wrecked

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