Subsidizing Students, Not Sallie Mae

James Surowiecki has an excellent finance column in this week’s New Yorker that drives home the message of one of our Countdown to Change campaign issues: that students, not banks, should be benefiting from government help for education. From The New Yorker:

[…] For decades, student-loan companies have had one of the cushiest businesses in America. We want college students to be able to finance their education at reasonable rates. But banks are understandably leery of lending to people with no collateral and uncertain future earnings. So we provide incentives to lend. The federal government, for instance, guarantees the so-called Stafford loans that college students get: if a student defaults, the government will pay off almost the entire loan. On top of that, the government hands out billions of dollars in subsidies to lenders every year, all but insuring them a steady profit. In effect, lenders get a guaranteed return with very little risk.

This convoluted process is good at making student-loan companies rich—Sallie Mae, the biggest issuer of student loans, earned $1.3 billion last year, with a return on equity that dwarfs most other companies’. But it’s not very good at getting government money to students cheaply and efficiently. President Bush’s 2007 budget shows, for instance, that it’s four times as expensive for the government to subsidize and guarantee private loans as for it to issue those loans itself. In other words, the current system is not just corrupt. It’s also inefficient. So why are we stuck with it? [full text]

The Business of Keeping People Poor

Business Week’s front page article this week, The Poverty Business, covers the recent boom in businesses and lenders preying on the poor. It elucidates a principle that my husband is fond of pronouncing — that it’s very expensive being poor.

In other news of poverty on the march, it appears from this piece by Paul Krugman that our new Democratic Congress was not able to forward one of the most important legislative initiatives of the first one hundred hours — that of negotiating drug prices for the Medicare seniors drug benefit. This is a huge disappointment to me, and to millions of families across the nation who were hoping for relief from the financial toll on seniors caused by the exorbitant cost of prescription drugs. Saddest of all, perhaps, is that the NAACP and the League of United Latin American Citizens have been complicit in this plot against medicare. From Krugman:

The plot against Social Security failed: President Bush’s attempt to privatize the system crashed and burned when the public realized what he was up to. But the plot against Medicare is faring better: the stealth privatization embedded in the Medicare Modernization Act, which Congress literally passed in the dead of night back in 2003, is proceeding apace.

Worse yet, the forces behind privatization not only continue to have the G.O.P. in their pocket, but they have also been finding useful idiots within the newly powerful Democratic coalition. And it’s not just politicians with an eye on campaign contributions. There’s no nice way to say it: the NAACP and the League of United Latin American Citizens have become patsies for the insurance industry.

To appreciate what’s going on, you need to know what has been happening to Medicare in the last few years.

The 2003 Medicare legislation created Part D, the drug benefit for seniors – but unlike the rest of Medicare, Part D isn’t provided directly by the government. Instead, you can get it only through a private drug plan, provided by an insurance company. At the same time, the bill sharply increased payments to Medicare Advantage plans, which also funnel Medicare funds through insurance companies.

As a result, Medicare – originally a system in which the government paid people’s medical bills – is becoming, instead, a system in which the government pays the insurance industry to provide coverage. And a lot of the money never makes it to the people Medicare is supposed to help.

In the case of the drug benefit, the private drug plans add an extra, costly layer of bureaucracy. Worse yet, they have much less ability to bargain for lower drug prices than government programs like Medicaid and the Veterans Health Administration. Reasonable estimates suggest that if Congress had eliminated the middlemen, it could have created a much better drug plan – one without the notorious “doughnut hole,” the gap in coverage once your annual expenses exceed $2,400 per year – at no higher cost.

Meanwhile, those Medicare Advantage plans cost taxpayers 12 percent more per recipient than standard Medicare. In the next five years that subsidy will cost more than $50 billion – about what it would cost to provide all children in America with health insurance. Some of that $50 billion will be passed on to seniors in extra benefits, but a lot of it will go to overhead, marketing expenses and profits.

With the Democratic victory last fall, you might have expected these things to change. But the political news over the last few days has been grim.

First, the Senate failed to end debate on a bill – in effect, killing it – that would have allowed Medicare to negotiate over drug prices. The bill was too weak to have allowed Medicare to get large discounts. Still, it would at least have established the principle of using government bargaining power to get a better deal. But in spite of overwhelming public support for price negotiation, 42 senators, all Republicans, voted no on allowing the bill to go forward.

If we can’t even establish the principle of negotiation, a true repair of the damage done in 2003 – which would require having Medicare offer seniors the option of getting their drug coverage directly, without involving the insurance companies – seems politically far out of reach. [full text]

With my own mother being almost 82 years old, I am perhaps more keenly aware of what goes on in the latter years of life and how much we as a culture seem to be in denial about how to help older Americans maintain their health as well as their financial independence. This piece in The New Yorker describes the lack of gerontology specialists across the country. It also makes clear that the only way to ensure any quality of life for yourself in old age is to save your own money so that you can afford things like medication and assisted living.

Interview with Senator Jack Reed

Issues discussed in the interview include: the Iraq War and Senator Reed’s response to the President’s current plan, Senator Reed’s plan going forward in conjunction with Senator Levin, the Biden-Gelb plan and its feasibility, concerns regarding the long-term effects of war on American military service personnel, including PTSD, and whether our VA’s are funded to handle the issues, health care and the crisis of the uninsured, Senator Reed’s efforts to fund SCHIP for the state of Rhode Island, the medicare prescription drug benefit and Reed’s support of the proposed changes, education funding from the national level and fulfilling the promise to fund special education under IDEA, addressing the national deficit by stopping the President’s tax cuts, funding alternative energy projects in the US. The interview is approximately 22 minutes long.

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.

C2C — Congrats to the Double-Time Congress

+Press Statement+

Countdown to Change Concludes Monitoring First 100 Hours in Record Time

The Countdown to Change project has now concluded monitoring the First 100 Hours of the Democratic Congress. In just under 43 hours, the new House leadership, under Speaker Nancy Pelosi, moved swiftly to enact a series of proposals that address the top domestic concerns of most Americans. We are pleased to report that our efforts helped to provide coverage to Rhode Islanders on these watershed shifts our government is making to be more responsive to its citizens. We are also glad to hear Democrats saying that this is only the beginning of the changes that can be made to bring about a more healthy, safe and productive world.

The Countdown to Change project divided up coverage of each of the following issues on the respective blogs of, and

Lobbyist, Ethics and Fiscal Responsibility Reform (Draining the Swamp) – Pat Crowley provided extensive coverage of this legislation which was passed by a vote of 280 to 152. 48 Republicans approved the reforms along with 232 Democrats.

Enact 9/11 Commission Recommendations – RI Future monitored the this legislation which passed by a margin of 299 to 128.

Increase Minimum Wage – Pat Crowley reported on this issue, (with help from Peter Asen). The minimum wage hike was passed by a huge margin of 315 to 116.

Expand Stem Cell Research– This legislation passed by a margin of 253 to 174 (not enough for an override), RI reported on this issue.

Negotiate for Lower Prescription Drug Prices – Kmareka reported on this legislation, which passed by a margin of 255 to 170.

Cut Interest Rates on Student Loans – Kmareka reported on this legislation, which passed by a margin of 356 to 71, with the highest number of Republicans joining Democrats to pass this bill.

End Subsidies for Big Oil and Invest In Renewable Energy – RI Future reported on this legislation which passed by a margin of 264-163.

Kiersten Marek of said: “The joke is that this is what you get when you put a woman in charge: 100 hours worth of work done in 43 hours. The truth is that even working double-time, our leaders have a great deal of challenges ahead of them. The need for collaboration, for people of all backgrounds to find common ground, has never been greater. We are thankful for these first efforts and look forward to reporting on the bigger changes as they come.�

Matt Jerzyk of said: “Rhode Island was a key state in ensuring that Democrats took control of Congress and I think Rhode Islanders are seeing that their investment was justified. Important investments in stem cell research and renewable energy were promptly debated and passed and the nation should feel more secure with the full passage of the 9/11 recommendations. It was truly informative and educational to witness and blog the laborious process that each bill must travel before passing and I hope to continue to provide more comprehensive coverage of Congress with the rise to power of Rhode Island Democrats in Congress.�

Pat Crowley of said, “More and more American’s are getting their political news from the Internet. What the Countdown to Change project did was allow people not just to read about the news on Capitol Hill, but actually take part in ways that they can’t do with traditional media. “

In the Pipeline for Student Loan Legislation

My sources have sent on to me a “confidential” document from Senator Ted Kennedy’s office, which includes a 21-page new bill called “The Student Loan Sunshine Act. ” This bill seeks to increase the accountability of lenders to students, and reduce any possible ethical problems created by gift-giving. The person who sent the email summarized the content of the bill as such:

This second draft will prohibit any lender from giving any form of gift, whether it be a small gift of a pen or popcorn, transportation, dinner, etc. to any college or university. In addition, it would prohibit any college or university from using their logo, letterhead or any other college communication that a college offers a loan, when in effect, the lender is offering the loan. They have added strict accountability measures to the Dept. of Ed, mandating a hearing for failure to provide this information. And, in addition, Financial aid offices would have to report which lenders they have agreements with, and the rationale for these agreements.

The idea here appears to be to increase accountability of lenders by asking them to prove that they are benefitting borrowers by (presumably) offering them a fair interest rate for their loans. Another aspect of the bill will help reduce contract steering between educational institutions and lenders, so that all lenders, big and small, have the opportunity to provide loans to students in a more free-market competitive manner.

We’ll be keeping our eyes peeled and our sunglasses ready for the upcoming appearance of the “Student Loan Sunshine Act.” The future’s looking so bright, I gotta wear shades.

C2C: Stop Big Oil’s Fleecing of America

Matt Jerzyk at has a post which provides a good summary of HR 6 and the context in which Congress is attempting to hold the oil industry more accountable:

Today, in Hour 36 of the First 100 Hours, the House will take-on one of the biggest friends of the Bush Administration: Big Oil.

This legislation, HR 6, will cut an estimated $13 billion worth of handouts to the oil industry. The money saved and generated from this legislation will be placed into a renewable energy fund to make the United States less dependent on foreign oil. That’s right. We are taking money from big oil companies who could care less about clean energy and putting the money into a fund to develop renewable energy. What a novel idea!

More specifically, the legislation would impose a “conservation fee” on oil and gas taken from deep waters of the Gulf of Mexico, scrap nearly $6 billion worth of oil industry tax breaks enacted by Congress in recent years and seek to recoup royalties lost to the government because of an Interior Department error in leases issued in the late 1990s. [full text]