Wednesday, June 29, 2005

Closing the Gap

Looks like the fed is not completely full of nut jobs afterall, and a smattering of folks actually have their thinking caps on.

Forty-two members of the Republican rank and file in the House sent a powerful message to their leaders last week when they joined with Democrats and voted to close an outrageous loophole that allows lenders to skim billions of dollars from loans that should be going to needy college students.

At issue is a special category of student loans for which the government guarantees lenders a gargantuan return of 9.5 percent, even though the prevailing rate charged to students is lower than 3.5 percent. The loans, backed by tax-exempt bonds, were created in the 1980's, when interest rates were high, to keep lenders in the college loan business. Congress tried to phase out the high-interest loans in 1993, when rates declined and federal subsidies were no longer needed. But the lenders have contrived a series of bookkeeping tricks that have kept the system going, despite damning reports by the Government Accountability Office, the Congressional Budget Office and outside advocacy groups. More recently, the House Republican leadership has seemed determined to keep the gravy train running for the banking industry.

The amendment, sponsored by Representative Chris Van Hollen, Democrat of Maryland, is likely to be tied up in a rules dispute. But the Republicans who broke ranks to support the bill put leaders on notice, and set the stage for a very public battle over the issue that should begin after the July recess. The leadership should read the writing on the wall.

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