Kill the FFEL

One important policy issue that has been knocked down the legislative agenda by all the discussion regarding healthcare reform and the financial and auto bailouts is the urgent need to reform the higher education loan and financial aid systems. 

As Act Now! first detailed in April, the proposal laid out in the president’s ambitious budget for 2010 could power up the Pell Grant program.  In addition to protecting Pell Grant scholarships from politicized annual funding debates, President Obama’s higher education budget proposal seeks to increase government loan origination through the highly successful Direct Loan Program and end the sweetheart subsidies the private student loan industry currently enjoys via the wasteful Federal Family Education Loan (FFEL) Program.
In her column on the topic, Gail Collins of the New York Times described the present system as “something like this:

¶We the taxpayers pay the banks to make loans to students.
¶We the taxpayers then guarantee the loans so the banks won’t lose money if the students don’t pay.
¶We the taxpayers then buy back the loans from the banks so they can make more loans to students, for which we will then pay them more rewards.”

Beefing up the government’s Direct Loan Program and killing off the FFEL corporate cash cow could add an estimated $94 billion in black ink to the government’s budget over the next decade—money that would make the establishment of a Pell Grant entitlement financially viable.  Any additional savings could also go to increasing the availability of subsidized Perkins Loans or other measures to expand access to higher education.

As the website Inside Higher Ed noted in a worrying piece published after a House Education and Labor Committee hearing in May, Congressional aides “sent conflicting signals about how locked in the panel is to the Obama proposal.”  Discredited private lenders, who were caught colluding with university financial aid advisors in 2007, are now working (and paying) behind the scenes to encourage swing Democrats like Ben Nelson, in whose state reform opponent Nelnet is headquartered, to weaken the administration’s proposal and preserve FFEL under the deceptive banner of “choice.”  Clearly, the finance industry will not give up its lucrative subsidies without a fight—as Collins observed, “Hell hath no fury like a middleman scorned.”

"President Obama has spoken of our nation's responsibility to 'make sure that people who have the grades, the desire and the will, but not the money, can still get the best education possible,'" as the Nation's  lead editorial noted this week. "He has proposed a modest but elegant plan to get us on track toward that goal."

Please join The Nation in supporting the higher education reforms laid out in President Obama’s budget proposal by filling out the form below and submitting the message. Add your name and any additional thoughts to the bottom of the email. We'll find your Congressional representatives based on your zip code and send it to them.

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July 07, 2020

Kill the FFEL

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