Village Voice
http://villagevoice.com/news/0603,kamenetz,71745,6.htmlGeneration Debt
Shady Sallie
An inside look at what Bush has done to your student loan
by Anya Kamenetz
January 13th, 2006 5:56 PM
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"The intent of Congress in creating our office was to get politics out of the agency and focus on improving service for students," says one former FSA insider, who agreed to talk only on condition of anonymity. But during his tenure, he would see just the opposite— a program that might have saved taxpayers billions was instead buried by the Bush administration.
Bill Clinton campaigned in 1992 to end the federally guaranteed student loan program, in which banks lend the money and profit from government subsidies while insured against default. He proposed a simpler system: The Department of Education would get money from the U.S. Treasury at minimum cost and loan it to students. After meeting stiff resistance from the banking lobby, officials settled for phasing in the Direct Loan initiative alongside the guaranteed loan program, rather than replacing it, in 1993. Lower-income students especially liked the income-based repayment option that comes with Direct Loans, with its provision that the debt can be wiped away after 25 years instead of clinging on forever. By the 1997–98 school year, Direct Loans had grown to 33 percent of all student borrowing, or just over $10.9 billion.
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The case became moot, though, after the 2000 election. President George Bush appointed William Hansen, the CEO of the Education Finance Council, another plaintiff in the suit, to be the deputy secretary of education. Bush's election, says the official, was the beginning of a war of attrition in the Office of Federal Student Aid, and by extension, the Direct Loan program. "The people Bush brought in told us we were no longer allowed to give speeches, talk to colleges, publish any brochures or reports, make any hires," he says. "The annual Direct Loan conference was canceled. Our communications person wasn't allowed to talk to the press without a
appointee in the room. You almost had to ask permission to go to the bathroom, and you never, ever got it."
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Besides simply not promoting the Direct Loan program, the Bush-era Department of Education has taken concrete steps to dismantle it. In 2001, FSA officials saw a memo from Peter Fischer, assistant secretary of the treasury, to William Hansen. Hansen had proposed selling off the Direct Loan portfolio to Sallie Mae and other private lenders. Fischer called the idea illegal and compared it to the recent Enron scandal, because private companies stood to profit from the deal while taxpayers assumed the risk. FSA employees were threatened with firing if they made the memo public. In the most recent education legislation, a student's right to consolidate her bank loans into the direct loan program, in order to take advantage of income-contingent repayment, was taken away. In 2004, Sallie Mae's market share beat that of the Direct Loan program for the first time.