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Closed Loophole Hasn't Cut Subsidies for Student Loans
By GREG WINTER

Published: April 10, 2005


Months after Congress unanimously passed a law to cut back on what it
called excess subsidies to student loan companies, federal payments to
lenders are as high as ever ...

For the last few years, student loan companies have taken great
advantage of subsidies that Congress thought it had done away with more
than a decade ago. Through creative use of a loophole in federal law,
lenders have amassed huge portfolios of loans carrying 9.5 percent
interest rates, guaranteed by the government ....

"Taxpayers continue to be gouged," said Senator Edward M. Kennedy,
Democrat of Massachusetts, who has been trying to eliminate the
guaranteed 9.5 percent interest rate for more than a decade. He added,
"It's time to stop guaranteeing this rip-off, and start guaranteeing
that college loans help students." ...

[S]ome of the lenders that originally qualified for the guarantee have
been converted into profit-seeking companies, or have been subsumed by
them, putting greater emphasis on profits. ...