Why Do We Need Banks (Again) for Student Loans?

The white collars at Sallie Mae are starting to get a little sweaty. First, the House of Representatives passed the new student loan legislation to reduce interest rates. Now Rep. Tom Petri (R-Wis) has introduced the The STAR Act (link here) which will help steer students toward Direct Lending as opposed to Sallie Mae. This is going to be a serious battle. As my source says, “Private lenders (Sallie Mae) are going send out their lobby in force. The industry is prepared to die on the hill. “

The STAR act would also increase funding for Pell Grants, which is much needed. Gordon Smith (R-OR) and Edward Kennedy (D-MA) are cosponsoring companion legislation in the Senate.

So why do we need banks for student loans? Well that’s just it: we don’t. And now that this boondoggle is being exposed, private lenders are going to be scrambling for position in the political landscape.

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