News and Tribune

Opinions

November 17, 2005

Loan ripoff is a test of rhetoric

Special-interest legislation doesn’t get much more obnoxious than the bill now making its way though Congress to clamp down on students and former students who want to refinance their loans at lower interest rates. They are about to be severely punished for seeking not only an education but a debt-free life afterwards.

While homeowners can refinance their mortgages as often as they want and relieve themselves of high-interest debt when rates cycle downward, student and former-student debtors are only permitted to refinance once for the lifetime of the loan! And now the House is considering legislation that would stop students who are in school from keeping their current interest rate of 4.75 percent and would instead force them to pay 7.9 percent, creating a lifetime burden entirely unjustified by the lending market.

Many students are locked into rates that approach 9 or 10 percent, reminders of the grim economic days of the early 1980s, and find themselves with no flexibility. Frequently, students use their once-only refinancing option shortly after graduation and find themselves helpless as the market interest rates drop ever lower.

Home-mortgage refinancing, often similarly guaranteed by Fannie Mae, has become a huge industry and has given many families alternatives to bankruptcy as they face huge debt burdens. But student loan refinancing — beyond the one shot now permitted — is blocked by special-interest regulation and legislation.

The legislative efforts by special interests reflect the power of the once quasi-public body Sallie Mae (Student Loan Marketing Association), which has now cut off all connection with the government and instead become a profit-making company unrelated to the government called the SLM Corp.

With a 25 percent share of the student loan market — more than six times that of its rivals — SLM has cashed in on federal guarantees against defaults on the one hand and blocked student refinancing on the other. As a result, according to columnist Terry Savage, writing for thestreet.com, SLM has made a profit of 1 percent over its loan volume of $100 billion — $1 billion in profit!

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