The 1998 re-authorization of the Higher Education Act, originally signed into law in 1965, was a battle between banks and students. Although the bill passed unanimously in the Senate, eased its way through the House of Representatives and was praised by a pen-wielding President Clinton, the actual process involved two years of haggling. This haggling produced a watered-down, token gesture to students and maintained the profits of the banking system. Despite all the praise heaped on the bill for its positive effects on students, banks and the economy still possess a higher priority than students and education with the federal government.
Interest rates on student loans received intense scrutiny by Republicans, Democrats and lobbyists on Capitol Hill. They decided to give students a meaningless decrease of 0.8 percentage points, from 8.2 to 7.4, arriving at the lowest interest rate in 17 years. Students will save a whopping $700 over 10 years under this scheme. The originally proposed bill reduced the interest rate to 6.8 percent, but the banks were not willing to give up their bloated profit margins. The act was also touted for increasing the maximum amount of money receivable from Pell grants, but this increase is illusionary because recipients have never received the full amount.
Under the two-prong interest rate program authorized by the bill, banks managed to retain their role as lenders to students and universities, despite early efforts to remove them from the educational-lending process entirely. The two prongs are actually two different methods of allocating money to students, the first of which involves the banks, preserving their profits, while the second incorporates the university as the lender.
The guaranteed student loan program, the first prong, allows the government to set the interest rate, determine who can receive the money and how much each student gets. Banks provide the capital and receive generous subsidies from the government in return for their services.
The direct loan program, the second prong, scales back government involvement in the loan process. This new program allows universities to hand out loans with money provided from the government, effectively cutting out the middle man.
The final winner of the battle between students and banks remains to be seen. Banks will continue to make huge profits off of government subsidies and interest rates for educational loans that are several percentage points above those for cars and mortgages, while students relish the minuscule decrease of rates and the token raising of the maximum amount of money receivable under the Pell Grant.
Congressional Republicans, Democrats and President Clinton all support an evolution toward a free-market system of allocating loans, which would give banks nearly complete control of the process. The Higher Education Act has done little to rectify the situation, and further legislative measures must be undertaken for the government to demonstrate that it has a real dedication to higher education as a priority in the United States. Otherwise they will have confirmed that banks and economics are more valuable to our future than an educated population.