Fixing the Broken Student Loan System

Whichever way you look at it, the student loan system is broken.

The cost of college education has skyrocketed. Tuition and expenses at a four-year public university cost nearly a third of the average family's income; at private colleges, the cost is almost three-quarters of their income.

This is where student aid is supposed to come in. Between grant aid and loans, students shouldn't have to worry about finding the money for a college education. But they do.

Each year, 400,000 qualified students don't attend a four-year college because they can't afford it. Those who do go to college are borrowing more than ever to finance their education. In 1993, fewer than half of college students graduated with debt. By 2004, more than two-thirds of students graduated with debt, and the amount of debt owed by a typical student more than doubled, to over $17,000.

I've been conducting an investigation of the student loan industry, and it's become clear that the current system often doesn't work in the best interest of students. At a time when families are pinching pennies to send their children to college, billions of dollars of taxpayer subsidies are being used to line the pockets of banks. These funds could and should be used to make college more affordable and debt more manageable.

The private student loan market has grown more than twelve-fold over the last decade and some of these private loans have interest rates as high as 19 percent. That's far more than any student should have to pay for their education. These lenders have been making money hand over fist. Thanks to excessive federal subsidies, the stock prices of major student loan providers have soared. The stock of Sallie Mae, the largest student loan company, had jumped from $3 a share to more than $40. Just this week, a group of investors announced plans to buy Sallie Mae for $25 billion, and its stock price rose to $55.05.

In recent weeks news reports have documented a range of unethical abuses by student loan companies to gain unfair advantage in marketing their loans to students. I've introduced a bill called the "Student Loan Sunshine Act" to require full disclosure of any and all agreements between lenders and colleges and universities. Lenders would be required to report the terms of their special arrangements with colleges, and they'd be prohibited from offering lavish gifts to financial aid directors and other college employees. The lenders would also have to clearly state the terms and conditions of the loans they offer to students.

I've also proposed an interest rate cut on student loans, capping student loan payments at 15% of income, and loan forgiveness for those who go into public service occupations. Most importantly, I want to increase federal grant aid to students.

In the coming weeks, the Senate will act on these proposals, and Congress will have the chance to tell the nation that when it comes to affording education, our top priority is students and families, not the lenders' bottom lines.