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 Patty 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% 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 6%. Government payments
on 9.5% loans have doubled in the last 18 months.
"Congress established
the 9.5% 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% 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% interest rates. The result has been abuse on the
part of lenders. In 2003, there were $12 billion in outstanding 9.5% 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.
"It is very unfortunate
that the Senate Appropriations Committee chose not to help students who are
trying to borrow money for college," said Robert Pregulman, Executive Director
of the Washington Public Interest Research Group. "Through her leadership,
Senator Murray built a remarkable bipartisan coalition to support the bill.
We hope she continues to push this legislation."
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% 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," said Pregulman
"Unless Congress takes action this session, lenders will continue to make
excess profits at the expense of struggling college students."
