Student Loans: The Government Is Now Officially in the Banking Business

Tuesday 30 March 2010
by: Ellen Brown
hat tip: t r u t h o u t

(Photo: Julio Ibarra Photographer; Edited: Jared Rodriguez / t r u t h o u t)

“We say in our platform that we believe that the right to coin money and issue money is a function of government…. Those who are opposed to this proposition tell us that the issue of paper money is a function of the bank and that the government ought to go out of the banking business. I stand with Jefferson … and tell them, as he did, that the issue of money is a function of the government and that the banks should go out of the governing business.”

- William Jennings Bryan, Democratic Convention, 1896

William Jennings Bryan would have been pleased. The government is now officially in the banking business. On March 30, 2010, President Obama signed the reconciliation “fix” to the health care reform bill passed by Congress last week, which includes student loan legislation called by the President “one of the most significant investments in higher education since the G.I. Bill.” Under the Student Aid and Fiscal Responsibility Act (SAFRA), the federal government will lend directly to students, ending billions of dollars in wasteful subsidies to firms providing student loans. The bill will save an estimated $68 billion over 11 years.

Money for the program will come from the US Treasury, which will lend it to the Education Department at 2.8 percent interest. The money will then be lent to students at 6.8 percent interest. Eliminating the middlemen allows the Education Department to keep its 4 percent spread as profit, money that will be used to help impoverished students. If the Department were to actually set up its own bank, on the model of the Green Bank being proposed in the Energy Bill, it could generate even more money for higher education.