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New York Times Editorial
http://www.nytimes.com/2005/07/18/opinion/18mon3.html?th&emc=th

Helping Students Instead of Banks
Published: July 18, 2005

The higher education lobby has rightly criticized Congress for failing
to pay for student aid programs at a level that comes anywhere near
meeting the national need. But some of those same lobbyists and the
universities they represent have opposed a beneficial bill that could
potentially produce billions of dollars in new student aid, basically
because the banking industry, which dominates the student loan
business, dislikes the measure.

The bill, called the Student Aid Reward Act and known as STAR, would
encourage colleges and universities to move away from an expensive and
heavily subsidized federal loan program - under which students borrow
money through banks - and toward a less expensive program under which
they borrow from the government through their schools. Under the law,
colleges that chose to switch to the direct method would be allowed to
keep half of the money they saved. That money could then be used to
give financial aid to low-income students.

The bill, which makes perfect sense to most reasonable people, does not
require colleges to use the direct program. It would merely provide
them with the option of doing so. Lenders, which oppose the bill
because it would cut their profits, have recruited some schools to
their side the old-fashioned way - by paying them off in various ways.
Under what's known as the "school as lender" program, the universities
issue the subsidized loans to students and then sell the loans to banks
within a matter of days, earning a handsome profit at taxpayer expense.
The arrangement creates a financial conflict of interest for the
schools, which can do anything they want with the money.

The STAR program would reserve more money for student aid and inject
competition into the current lending scheme. But some higher education
groups have argued that merely giving schools the choice between the
subsidized scheme and this new program would somehow damage student
aid. By shilling for the lenders, these groups have placed their own
financial interests above the interests of their neediest students.
They have also lost credibility in the battle to win more student aid
from Congress.