Student Lenders Make Bank

I posted last week that Congress had just stiffed students on funding of student aid programs. According to a Brian Faler article in the Washington Post, banks and other lenders who receive a hefty subsidies to make student loans have been doing somewhat better.

The Post cites an Inspector General report and a report from the General Accounting office showing how banks have been abusing a loop hole in the law to pocket a lot of money in excess subsidies.

From the Article:

Congress tried to end that program in 1993. But it grandfathered loans that were funded by tax-exempt bonds issued before Oct. 1, 1993. In recent years, lenders have discovered and used various financial techniques and arrangements not only to maintain but also, in many cases, dramatically increase the volume of loans eligible for the subsidy.

A Government Accountability Office report last year found that subsidy payments skyrocketed from about $209 million in 2001 to more than $600 million as of June 2004. The government said it ultimately spent about $1 billion on the payments last year.

No doubt the student loan industry is getting very well paid through its government entitlements. This subsidy is just one of the most egregious examples.

The question is, what should the government do with all the excess money it is paying to student lenders? You decide.