Senator Edward Kennedy (D-Mass) introduced a bill to the U.S. Senate yesterday that he hopes will reduce the current financial strain many students are facing in higher education.
The bipartisan plan, unveiled by Senators Kennedy and Gordon Smith (R-Ore), and Congressmen Tom Petri (R-Wis) and George Miller (D-Calif), will, according to a press release, "provide billions in additional college scholarships to undergraduate and graduate students at no additional cost to taxpayers."
Dubbed the Student Aid Reward Act of 2005, or the STAR Act, the program will save students $17 billion over the next 10 years, and would allow Pell Grant recipients to receive as much as an extra $1,000 dollars annually.
According to Kennedy, this would greatly increase the amount of money available to students without increasing the budget deficit.
If passed, the STAR legislation would employ a direct loans system, effectively cutting out of the process middlemen such as banks and Sallie Mae.
Under the Sallie Mae model, "the federal government underwrites and subsidizes loans issued by private lenders and banks. These loans bear virtually no risk for private banks, yet have an assured rate of return and are guaranteed against default by the government," a press release said.
For Kennedy, the more efficient system "[provides] loans [that] are issued from the U.S. Treasury funds, and private companies are contracted to service and collect student loan payments," a press release said.
Kennedy said that, currently, student loan plans most commonly used by colleges and universities are tremendously inefficient, but firmly entrenched.
In a live teleconference with the Tufts Daily and other student news organizations across the country held yesterday, Kennedy said that, "at the present time, the current program [used by colleges] has virtually no competition from any other source."
Kennedy said that, yesterday, he introduced legislation that will permit direct loan programs to compete with Sallie Mae.
Organizations like private lender Sallie Mae are currently the staple of student loan programs in the U.S., and, according to Kennedy, present an inefficient model.
"Even though [our legislation] makes a lot of sense for both the student and taxpayer, this will be a difficult battle [in the Senate] - make no mistake about it," Kennedy said.
Kennedy said the real impediments the STAR Act would face are the banks and Sallie Mae, who profit from the current student loans program. The "political arm-twisting of Sallie Mae" will be, in his opinion, the most difficult hurdle his program faces.
Petri, who joined Kennedy for the teleconference, said that in the past such a setup made sense for the United States, but that it is no longer applicable.
"These programs [such as Sallie Mae's] were set up 40 years ago when the government could not feasibly make loans all across the country [as a result of inefficient technology]," Petri said.
"It made sense at the time, but since then we've had a computer and communications revolution, and data processing is very efficient and cheap, the direct loan program makes the most sense today," Petri said.
Although technically both Kennedy's favored model and the Sallie Mae model are available to colleges and universities at present, the STAR Act, if passed, would call upon the U.S. Secretary of Education to determine which program is most efficient.
Subsequently, colleges and universities would be rewarded financially for choosing the most efficient option, while at the same time creating a healthy competition that would force the federal loan programs to improve their efficiency.
Kennedy said that in order for his legislation to pass, college students will have to become directly involved in the struggle.
"We can't underestimate the [sway and political power] of the other side, and the only way we can succeed is to get your campuses to make this a prime issue for activity," he said.
"Students need to develop a sufficient kind of activity on campus that will get their college to go for this program," Kennedy said.
For Kennedy, the time for introducing STAR could not be better. "We believe this is enormously important, and comes at an obviously critical time when the costs of education in my own state [Mass.] have gone up 47 percent in the last four years," Kennedy said.
