Student loan interest policy 'unduly punitive'

The following excerpted editorial appeared in the Nov. 27 Times Union of Albany, N.Y.:

While Congress has been battling over how much to cut student loan programs, another aspect of this debate has been largely overlooked -- namely, the move to prevent students and former students from refinancing their loans whenever interest rates decline. That's unduly punitive. The magnitude of the proposed cuts in student loan programs -- $14.3 billion in the House, $8.8 billion in the Senate -- is unjustified as well. The cuts are being touted as necessary to rein in government spending and keep the budget deficits under control. ...

The student loan programs would take a huge hit. They now amount to $37 billion. Supporters of the cuts defend them largely on the grounds that much of the money represents unjustified subsidies to lenders, but even so, it means less cash for students who need to finance their education. ...

But when it comes to a double whammy, students and former students who are paying off their loans are in a special class. The House is said to favor making permanent a provision in current law that prohibits borrowers from renegotiating interest rates more than once in the lifetime of a loan. That contrasts with the flurry of refinancing whenever mortgage interest rates decline.

Back when Sallie Mae, a major education finance company, was a quasi-public agency, this provision made sense. But Sallie Mae is now in the private marketplace and, by some estimates, is enjoying profits of some $1 billion a year. At the same time, the government shields lenders from bad student loans by denying borrowers the right to write them off by declaring bankruptcy. ...

At some point, though -- sooner rather than later -- Sallie Mae must be required to play by the rules of the private marketplace.



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it's designed to rein in an educated middle class