Issue date: 4/2/08 Section: Opinion

The Salt Lake Tribune reported last week that Zions Bank was bailing out of the federal government's largest student loan program, joining 26 other lenders that have done the same since last fall. The number of financial institutions leaving the program is unprecedented, according to the report, representing as much as 30 percent of its total loan volume.

"Given the changes in legislation that have taken place, it really has made it not viable from a financial standpoint to continue accepting applications for government-guaranteed student loans," an official with Zions Bank said.

In plain talk, he means that it's harder now for his bank to gouge students sufficiently when they need to get money for their education.

Last September, the Democratic Congress passed the College Cost Reduction and Access Act, which cut college loan interest rates in half, created an income-based repayment program and reduced the subsidies paid to private banks for making the loans. The profit from participation is now reasonable instead of grotesque, so the banks are, in essence, taking their marbles and going home -- needs of the students be damned.

Well, good riddance. It is past time to get these banks out of the student loan business, anyway. As a start, the next president, working with a Democratic Congress, should immediately move the United States back onto the track that President Clinton had us on in the 1990s.

When he took office in 1993, Clinton signed an order increasing federal direct lending to students. He saw the order as a way to save the government money and make it easier to go to college. But when the Republicans took control of Congress in 1994, they promptly killed his effort and demanded that the Department of Education stop encouraging colleges to switch to the direct-loan program.

When George W. Bush was sworn in, he immediately reversed another Clinton-era order cracking down on gifts given by lending banks to colleges and their financial aid officers. Clinton had worried, rightly, that these goodies -- tickets, vacations, donations to favored foundations, lucrative consulting deals -- were nothing more than bribes intended to buy a designation as a college's preferred lender and the chance to rake in as much as 90 percent of that school's loan business.

This is clearly an unethical collaboration between the lending industry and the schools, but the Bush administration has decided that the involved parties are capable of regulating themselves. New York Attorney General Andrew Cuomo has called it "a form of kickback scheme." At the very least, it is one of the most clear-cut examples of corporate welfare and waste we've seen in a long time.

Continued...

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