How Special Interests Crippled Education Reform

When Congress passed the health care bill, with it came a momentous education reform. Signed into law by President Barack Obama, its intention was to help relieve the ever-rising burden imposed by soaring college fees and tuition rates.

This reform was funded by ending a government subsidy to big banks in the business of student loans. Under the previous system, the government ensured that student lenders would always make money; if students defaulted on their loans, the government would pay the money to the student lenders. In a CBS 60 minutes report, think tank expert Michael Dannenberg characterized this as:

a socialist-like system,” he says. “It’s not as if this private entity is assuming any risks. No, no, no. The law makes sure that this so-called private entity has virtually no risk.”

Unfortunately for students, this lucrative government-funded industry did relatively little to benefit them. Take a look at Sallie Mae, perhaps the biggest player in the student loan industry. Sallie Mae’s loans carry a variable interest rate, which right now appears to be 10.55%. In addition it charges a disbursement fee of 3%; other banks have similar fees.

Such practices can make already high student debt astronomical. Take Brit Napoli, who originally borrowed $38,000. According to the CBS report, that loan has ballooned to $71,000. College graduate Lynnae Brown’s $60,000 loan has jumped to an astounding $262,383 after she fell behind in payments.

Education reform was intended to help people like Brit Napoli and Lynnae Brown. Subsidies for big banks and corporations like Sallie Mae were ended. Money for poor people to attend college was expanded. Money was even saved by ending these government subsidies.

The special interests fought every step of the way. They lobbied. They waved cash at Senators. They argued that their jobs were at stake (therefore the bill would “take away jobs”), and that teenagers deserved more choices. In the end, they succeeded in vastly weakening the original ambitions embodied in education reform.

The original bill envisioned a rise in maximum Pell Grants – federal money for low-income students to attend college – from $5,350 today to $6,900 in 2019. Interest on federal student loans was to remain relatively low: 3.4% past 2012 (compare that with Sallie Mae’s 10.55%). Money was to be invested in early childhood education, community colleges (the American Graduation Initiative) and a College Access and Completion Fund. Federal Perkins loans were to be reformed “to reward institutions for their success in graduating low-income students.”

By the time special interests were done with the bill, almost all of this was gone. That increase in Pell Grants – it’s now only up to $5,975, a paltry $62.50 per year. In other news, Harvard College increased its tuition by $1868 for the 2010-2011 year (for a total cost of $50,724).

As for federal student loans: in 2013 the interest rate goes right back up to 6.8%. Investment in community colleges was cut by 80%. Reform of Perkins loans, investment in early childhood education, and the College Access and Completion Fund were scrapped altogether.

This is not to say that education reform has been a miserable failure. Without it, things would be far worse. The maximum Pell Grant would have decreased to $2,150 – or 4.2% the cost of attending Harvard for one year. Community colleges still get some money. Investment in historically black colleges hasn’t been cut. The government will no longer protect lenders who prey on unsophisticated students.

But boy did the special interests succeed in gutting a wonderful bill. The saddest part, moreover, is that their efforts were all pointless. All the lobbying, all the money thrown at Senators like Ben Nelson (Neb.) and Kent Conrad (ND) – it only served to delay the bill. The government subsidies which Sallie Mae so desperately protected are gone. In the end, the only thing the special interests were able to do was make college more unaffordable for millions of poor Americans.

--Inoljt, http://mypolitikal.com/

 

Weekly Audit: After Health Care, the Economy

By Zach Carter, Media Consortium blogger

Now that health care reform has finally been enacted, a host of critical economic issues are taking center stage, including financial reform, unemployment and deeply rooted economic inequality. But it’s important to note that with its health care vote, the U.S. House of Representatives actually approved a very important, and often overlooked financial reform: Student lending.

Pedro de la Torre III of Campus Progress explains the current student loan nightmare in an interview with The American Prospect’s Rebecca Delaney. For years, the U.S. government has paid massive subsidies to some of the worst-run companies in the country.

Thanks a lot, Sallie Mae

As de la Torre notes, instead of directly making loans to students, the government spent years funneling money to firms like Sallie Mae to actually make the loans. When things went sour, taxpayers covered the lender’s losses from student loans that ultimately went bad.

Taxpayers were also footing the bill for the loans and taking on the risk, while private companies and their executives enjoyed the benefits. The executives made quite a haul. In 2008 alone, Sallie Mae CEO Albert Lord took home an astonishing $46 million. Even among CEOs, that’s a princely sum—more than double what Halliburton CEO David Lesar made the same year. All of that money could have financed a lot of college educations.

Fortunately, the student loan landscape is almost certain to change as a result of the health care vote. The House bill included a provision to end student loan subsidies and boost funding for direct grants from the government to students.

Since the student loan reform and health care were both eligible for reconciliation in the Senate (meaning only 51 votes are needed for passage instead of the 60 to clear a filibuster), House Democrats decided to move on both at the same time. It’s a significant reform, and one that will soon become law with President Barack Obama’s signature.

What would an overhaul of the consumer finance industry entail?

The student loan system is just one aspect of the consumer finance industry that needs a major overhaul. On mortgages, credit cards, overdrafts, and payday loans, the banking status quo is one of outright predation. As Heather McGhee of Demos explains to The Nation’s Christopher Hayes, there’s a reason why federal agencies do a lousy job regulating consumer banking abuses.

Right now there is no agency responsible for consumer protection alone. Every regulator also focuses on making sure banks don’t fail, which generally means that regulators support anything that increases short-term profits. Egregiously predatory practices generally lead to big short-term gains in banking.

A new consumer financial protection bureau

Last week, Senate Banking Committee Chairman Chris Dodd (D-CT) introduced a bill that would create a new bureau of consumer financial protection, with no constraints from bank profitability. It’s a step in the right direction, but as McGhee notes, there are plenty of problems with Dodd’s proposal. Most problematically, the bill gives existing agencies a veto power over any new consumer protection rules. That’s a terrible loophole. Existing regulators have actively opposed consumer protections in the past, and there is every reason to expect that practice to continue.

Rapid tax refunds scam the poor

It’s late March, which means tax season is getting into full swing. All over the country, mascots from Liberty Tax are spilling into the streets wearing goofy costumes, trying to win your business. But millions of Americans don’t realize that Liberty, along with H&R Block, Jackson-Hewitt and hundreds of smaller businesses are engaged in a monstrous scam disguised as a complicated accounting service.

As Alexander Zaitchik emphasizes for AlterNet, these tax preparers have used deceptive advertising and slick salesmanship to con people into taking out “refund anticipation loans,” also known as “rapid refunds” and a handful of other pleasant euphemisms. It’s a simple gimmick: H&R Block does your taxes, and then presents you with your tax refund, right away, no waiting. But the check you receive is not actually your tax refund—it’s your tax refund minus a truckload of fees that you didn’t realize were being deducted. This is the tax-time equivalent of payday lending.

When the government sends in your actual, larger tax refund one-to-two weeks later, you won’t see it—it goes straight to H&R Block’s bank partner. Those banks are making big money taking from your tax returns. Here’s Zaitchik:

“In 2008, more than eight million Americans spent nearly a billion dollars paying interest and fees on RALs—often based on misleading or incomplete information—swelling the profits of tax preparers and their partner banks.”

The one break low-income people get under the U.S. tax code is the Earned Income Tax Credit (EITC), the nation’s largest anti-poverty program. Only about 16% of taxpayers qualify for the EITC, but as Zaitchik notes, nearly two-thirds of the people who take out refund anticipation loans receive the credit. Tax preparers are making a concerted effort to prey on the poor, making the EITC program more expensive and less efficient for all taxpayers—not just those who go to H&R Block or Liberty Tax.

More action needed on jobs

Beyond finance, the U.S. economy has a serious jobs problem. Last week, Congress approved an $18 billion jobs package that is simply far too small to make a serious dent in the nearly double-digit unemployment rate. As Art Levine explains for Working In These Times, the package will create 250,000 jobs at best. That number shouldn’t be acceptable to anyone watching the U.S. economy, which has shed about 7 million jobs since the recession began.

There are much stronger options available than the $18 million bill the Senate approved. Rep. George Miller (D-CA) has introduced a bill in the House that would quickly save or create one million jobs, and the House has already passed a separate $154 billion jobs package that would prevent 900,000 lay-offs. If the Senate moved on either one, the result would be a major economic boost.

The link between poor economies and poor health

All of these problems—unemployment, student loan scamming, refund anticipation loan sharking and other forms of financial predation—reinforce economic inequality in the United States, which is at levels unseen since before the Great Depression. That inequality is ultimately actively damaging to public health, as epidemiologist Richard Wilkinson explains in an interview with Brooke Jarvis for Yes! Magazine. Rampant economic inequality in the United States is literally making us sick.

“We looked at life expectancy, mental illness, teen birthrates, violence, the percent of populations in prison, and drug use,” Wilkinson says. “They were all not just a little bit worse, but much worse, in more unequal countries.”

With health care finally finished, Congress and the administration have an opportunity to make serious headway on the economy. They’ve got plenty of work to do.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

 

 

A Close Call With Education Reform

Several months ago I wrote about the Student Aid and Fiscal Responsibility Act, a bill which aims to make college more affordable.

The bill does this through several mechanisms. Firstly, it expands federal Pell Grants, which are government grants to low-income college students. These individuals would not be able to attend college without such types of aid (although an average Pell Grant these days would cover barely more than one-tenth the cost of attending a place like Harvard). The bill also sets Pell Grants to rise year after year, in line with inflation. President Barack Obama perhaps best explains the significance of this reform:

...we are also changing the way the value of a Pell Grant is determined.  Today, that value is set by Congress on an annual basis, making it vulnerable to Washington politics.  What we are doing is pegging Pell Grants to a fixed rate above inflation so that these grants don't cover less and less as families' costs go up and up.  And this will help prevent a projected shortfall in Pell Grant funding in a few years that could rob many of our poorest students of their dream of attending college.  It will help ensure that Pell Grants are a source of funding that students can count on each and every year.

Unfortunately, if the bill does not pass, this year's Pell Grants will be cut by more than half. In a bad recession and with ever-rising college tuition prices, this would severely impact a large number of Americans. Many individuals seeking to better their lives through college would be deeply hurt. Some might be forced to drop out. Others might have to add on yet more crushing student debt, forced to take exorbitant loans from private lenders.

The good news is that the Student Aid and Fiscal Responsibility Act also reforms the system of student debt. I previously wrote that under the current system:

...the federal government encourages banks to loan money to students. These loans are guaranteed and subsidized by the government.

Unfortunately, private banks are not in the business to help students. Many private student loans can be compared to sub-prime mortgages; they charge exorbitant interest rates, add numerous fees (e.g. the origination fee), and often take advantage of vulnerable, low-information customers. Moreover, under Republican banking reforms, student debt cannot be wiped away through bankruptcy.

Federal loans are different. Because the government is not out to make a profit, government loans (e.g. Stafford loans, Ford Direct student loans) generally carry lower interest rates and no fees.

Such a change, moreover, would reduce the deficit. The federal government would no longer refund private lenders if students defaulted, saving about $87 billion.

A bill which makes college more affordable, reduces student debt, and screws over the banks - it sounds too good to be true. What mad creature in Washington wouldn't support such a reform?

There are, in fact, two such creatures. Firstly, a number of Republican oppose the Student Aid and Fiscal Responsibility Act because of philosophical concerns. The reform substantially expands the role of government in education, which goes against the tenets of conservatism.

Secondly, banks and private lenders oppose the bill, for obvious reasons. These special interest groups have mounted an intense lobbying campaign, arguing that they can give more choices to 18-year-olds. They also give Senators something rather more important than choices: money.

A number of senators responded to this incentive. At least six Democrats - Bill Nelson (Fl.), Tom Carper (Del.), Blanche Lincoln (Ark.), Jim Webb (Va.), Mark Warner (Va.) and Ben Nelson (Neb.) - wrote a letter expressing opposition to the bill because of job losses by banks. Yesterday Senator Kent Conrad of North Dakota attempted to kill the bill, arguing that it did not fit budget reconciliation requirements. As of Thursday morning education reform appeared in trouble.

By the evening, however, a determined push by more supportive Democrats ended in progress for the law. Under the tentative agreement, it will be passed along with health care reform under Senate reconciliation.

Education reform is still by no means certain. There is still much time for banking lobbyists to kill reform with nobody noticing. With the public inattentive, a failure would have very little political consequence.

Yet a failure would have dramatic real-life consequences. The costs of college would continue to rise inexorably. Government education grants would be cut in half. Private student lenders would continue to prey upon unsophisticated teenagers, burdening them with astronomic, unfair loans. Millions of Americans would be left unable to attend college - unable to reach the American Dream.

This bill would not end these problems - it would not address the fundamental catalysts behind ever-rising college tuition. But perhaps, if it survives the assault by the banking community and becomes law, it will represent a beginning.

P.S. If you as the reader support the Student Aid and Fiscal Responsibility Act, please call your senator, briefly voice your support for this reform, and go on with your day. Senators listen to the calls of their constituents. It is high time college became less expensive and more affordable, and a tiny step like this may yield urgent reform. Their numbers can be found at this useful site (although its purpose is somewhat different from education reform).

--Inoljt, http://mypolitikal.com/

 

 

Eliminate Filibuster Now: A "First 100 Days" of Year 2, Avoid Supreme Court Fight, Win 2010 Elections.

Police Lt.: Well, Denham, the airplanes got him.
Denham: No, it wasn't the airplanes. It was beauty killed the beast (King Kong, 1933)

The filibuster will be eliminated this year. One, and possibly two, Justices will retire at the end of the term in June. There is a 100% guarantee that Republicans will filibuster anyone President Obama appoints, claiming approval should await the outcome of the November elections. The President has shown a belief, unsupported by events, to try to be acceptable at least to some Republicans so they will vote for him, in this case, his nominee.

They won't.

So, we will get a lukewarm nominee, and no Supreme Court Justice. The Republicans know theatre very well--that situation will be perceived as the pathetic end of a dysfunctional government.

At that point, Democrats will truly be in a no-win position. If they eliminate the filibuster at that time, for that single purpose, Republicans will have a couple of months right before the election to denounce the 'trickery' to get 'activist' Justices seated. Nonetheless, they will have to eliminate the filibuster then because not to do so would alienate all their constituencies, and guarantee a shellacking in the 2010 elections.

More importantly, Democrats will be in a no-win position because the government will have been dysfunctional for another year and, despite it being Republicans' fault, the Democrats will be blamed because they are in control. And, they have 59 votes, more than Republicans ever had when they rammed through their agenda, and ran the country into the ground.

So, why not recognize the inevitable? Eliminate the filibuster right now. Then, the Republicans' pompous posturing will dissipate after a couple of months now, not near the election, and the Democrats will have a chance to do a "First Hundred Days" of year 2, to pass a robust agenda that will indeed have brought about change:

1) A jobs bill that actually creates jobs;
2) Approve all the President's appointments, together, one vote.
3) A financial reform bill that incorporates Elizabeth Warren's consumer protection agency and (my hope) reinstitution of Glass-Steagall.
4) Healthcare reform incorporating Joe Lieberman's former love, buy-in to medicare for those 55 and older; and a public option; and a combination of taxing high-end plans + a surtax on the wealthy (House + Senate version).
5) Student loan reform
6) Energy tax and rebate (Senator Cantwell's proposal).

While the Republicans bellyache about being steamrollered, Democrats can pass the agenda for which the nation voted in 2008, but soured because of the dithering and dealmaking the existence of the filibuster created. Without the filibuster, no one would have had to talk to Joe Lieberman or Blanche Lincoln or Ben Nelson. [And, since no one would have had to talk to them, I bet they would have been more supportive!].

Without a filibuster, when the summer arrives, and the 1-2 Justices announce their retirements, the President can nominate really good people to the bench. One might suspect that the caliber of those people would be significantly higher than whom he might choose in the vain attempt to get Republican support.

Today, the world is disintegrating. Republicans fear the President's success, both at home and abroad. So does al-Qaeda and Ahmadinejad. They are all reveling in his troubles, because his capacity to force change abroad is limited by his inability to do it at home.

I am late to the "end the filibuster" movement because I worry about what Bush et al. might have done if there were no filibuster then. Social security would have been privatized--and decimated by the financial collapse. Stem cell research would have been totally outlawed (passed twice by the House).

But, I am willing to take those future chances, because the country and the world cannot await an even greater than 60-vote majority that Lyndon Johnson had in the 1960s that will never happen. Eliminating the filibuster means we have to deliver for the American people, and maintain constant vigilance against another radical rightwing takeover.

Although the President is not himself a "boomer", those who control the Congress are. Many of them had their hopes and dreams for a better America, and a safer and more just world, dashed when Robert Kennedy was assassinated. It was then hijacked by George W Bush.

This is their last chance. It starts with eliminating the filibuster.

Now.

 

Eliminate Filibuster Now: A "First 100 Days" of Year 2, Avoid Supreme Court Fight, Win 2010 Elections.

Police Lt.: Well, Denham, the airplanes got him.
Denham: No, it wasn't the airplanes. It was beauty killed the beast (King Kong, 1933)

The filibuster will be eliminated this year. One, and possibly two, Justices will retire at the end of the term in June. There is a 100% guarantee that Republicans will filibuster anyone President Obama appoints, claiming approval should await the outcome of the November elections. The President has shown a belief, unsupported by events, to try to be acceptable at least to some Republicans so they will vote for him, in this case, his nominee.

They won't.

So, we will get a lukewarm nominee, and no Supreme Court Justice. The Republicans know theatre very well--that situation will be perceived as the pathetic end of a dysfunctional government.

At that point, Democrats will truly be in a no-win position. If they eliminate the filibuster at that time, for that single purpose, Republicans will have a couple of months right before the election to denounce the 'trickery' to get 'activist' Justices seated. Nonetheless, they will have to eliminate the filibuster then because not to do so would alienate all their constituencies, and guarantee a shellacking in the 2010 elections.

More importantly, Democrats will be in a no-win position because the government will have been dysfunctional for another year and, despite it being Republicans' fault, the Democrats will be blamed because they are in control. And, they have 59 votes, more than Republicans ever had when they rammed through their agenda, and ran the country into the ground.

So, why not recognize the inevitable? Eliminate the filibuster right now. Then, the Republicans' pompous posturing will dissipate after a couple of months now, not near the election, and the Democrats will have a chance to do a "First Hundred Days" of year 2, to pass a robust agenda that will indeed have brought about change:

1) A jobs bill that actually creates jobs;
2) Approve all the President's appointments, together, one vote.
3) A financial reform bill that incorporates Elizabeth Warren's consumer protection agency and (my hope) reinstitution of Glass-Steagall.
4) Healthcare reform incorporating Joe Lieberman's former love, buy-in to medicare for those 55 and older; and a public option; and a combination of taxing high-end plans + a surtax on the wealthy (House + Senate version).
5) Student loan reform
6) Energy tax and rebate (Senator Cantwell's proposal).

While the Republicans bellyache about being steamrollered, Democrats can pass the agenda for which the nation voted in 2008, but soured because of the dithering and dealmaking the existence of the filibuster created. Without the filibuster, no one would have had to talk to Joe Lieberman or Blanche Lincoln or Ben Nelson. [And, since no one would have had to talk to them, I bet they would have been more supportive!].

Without a filibuster, when the summer arrives, and the 1-2 Justices announce their retirements, the President can nominate really good people to the bench. One might suspect that the caliber of those people would be significantly higher than whom he might choose in the vain attempt to get Republican support.

Today, the world is disintegrating. Republicans fear the President's success, both at home and abroad. So does al-Qaeda and Ahmadinejad. They are all reveling in his troubles, because his capacity to force change abroad is limited by his inability to do it at home.

I am late to the "end the filibuster" movement because I worry about what Bush et al. might have done if there were no filibuster then. Social security would have been privatized--and decimated by the financial collapse. Stem cell research would have been totally outlawed (passed twice by the House).

But, I am willing to take those future chances, because the country and the world cannot await an even greater than 60-vote majority that Lyndon Johnson had in the 1960s that will never happen. Eliminating the filibuster means we have to deliver for the American people, and maintain constant vigilance against another radical rightwing takeover.

Although the President is not himself a "boomer", those who control the Congress are. Many of them had their hopes and dreams for a better America, and a safer and more just world, dashed when Robert Kennedy was assassinated. It was then hijacked by George W Bush.

This is their last chance. It starts with eliminating the filibuster.

Now.

 

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