On Student Loans: Is “Project 2025” Really that Bad for the Country? Yes. It is.
40 Million Americans and All Taxpayers would be robbed blind.
Background:
When the federal student loan program was created in 1965, President Lyndon Johnson declared that the loans were to be “free of interest”. That never happened. What did happen: The student loan industry embarked on a decades long quest to strip standard consumer protections from the debt. By 1998, they had succeeded in extinguishing bankruptcy rights, statutes of limitations, Truth in Lending laws, and Fair Debt Collection Practice laws. Today, it is difficult to name any consumer protections that still exist for federal student loans.
The banks (who made the loans until 2010) loved this arrangement. They took no risk, since the government was fully reimbursing them for defaulted loans. So they were, essentially, given a license to hyper-inflate loans, provide heinously bad customer service, and generally abuse the borrowers to no end with impunity.
By 2010, they were making $50 Billion per year in interest on these loans, and a vast network of state guarantors, collection companies, and others made additional revenue through massive penalty/collection fees on defaulted loans. A few examples of borrowers from those years:
This was truly the “Golden Age” of student loans from the banks’ perspective. After bankruptcy rights were, for all intents, totally removed from federal loans in 1998, the stock price of Sallie Mae (the nation’s largest student loan company) shot up by thousands of percent, The CEO made enough money to purchase a major league baseball team, and build his own, private, luxury golf course. He was perennially named Washington DC’s highest paid executive.
President Obama, however, essentially federalized the federal student loan program in 2010 as a part of the Affordable Care Act. This essentially cut the banks out of the program as lenders, with the Department of Education lending the money directly to students instead. As such, the interest now accrues to the federal government, rather than private banks, and the interest generated has grown to well over $100 Billion annually since 2010.
The banks absolutely hate this new lending arrangement.
While they still make significant money through both loan servicing and collections on defaulted loans, they absolutely cannot stand that the taxpayers are now making this $100 Billion/year in interest instead of them. Project 2025 does many things, all of them bad for borrowers, but what Project 2025 really is, is an attempt to redirect $100 Billion of interest away from the taxpayer, and towards themselves.
At the root of it, Project 2025 is really just a shameless, bald-faced attempt by private banks to redirect $100 Billion of interest away from the taxpayer, and towards themselves every year.
Project 2025 attempts to do many things with the Department of Education well beyond just student loans and the scope of this article. As it pertains to student loans, here are a few key quotes with explanations:
This is private banks (Like Sallie Mae, Navient, Nelnet, possibly SOFI, etc) attempt to redirect the $100 Billion in interest/year away from the taxpayers and to themselves. They also, apparently, would like to administer roughly $25 Billion/year in Department grants.
This is an attempt to end various existing loan cancellation mechanisms, which have been in place for years for students who were defrauded by their schools, had schools close, and for people who worked in Public Service for 10 or more years.
Loan cancellation- in all of its forms-is the mortal enemy of the student loan industry. The HEA gives the Secretary of Education very broad authority to waive, compromise, release federally owned to student loans. The StudentLoanJustice.Org petition which launched this concept into the public conversation, incidently. This is a great threat the industry. The quote above is the student loan industry attempting to end this power through the repeal of section 1082(a)6 of the Higher Education Act, which clearly describes this power. This key language (shown below) has been in force since 1965 (before, actually). This language still has not been used to broadly cancel student loans, but it could be used. This scares the lending industry to death.
This is an obscure, and rather complicated passage in Project 2025. The industry has, for years used a bastardized version of “Fair Value Accounting”, which uses current market rates for assets to assign value to an asset. The student loan industry’s “bastardized” version would use private student loan interest rates- which are typically much higher than federal student loan interest rates- as a basis for claiming that the federal government is actually losing- not making money (and a lot of it) on their federal student loan portfolio. This, essentially, gives private banks the power to make the federal loan program “look” like it is losing money, when in fact the opposite is true. In fact, the industry can make the federal program appear to be more expensive by raising their interest rates! This is a truly Machiavellian maneuver, and is described here in far greater detail.
So, Project 2025 is every bit as bad as is being described for student loan borrowers (and likely well beyond student loans, although that is out of the scope of this article. It is terrible for student loan borrowers, and incredibly expensive for the taxpayers. There is nothing “conservative” about it, it is really only an immoral and greed-driven attempt to fleece the taxpayers, 40 million student loan borrowers, and strengthen and perpetuate the most unconstitutional, predatory, and nationally threatening loan scam in US History.
Donald Trump is smart to be trying to distance himself from this document, but on student loans, it will be hard for him to do. His Education Secretary, Betsy DeVos frequently calls for the privatization of the federal student loan program, and ran the Department’s cancellation programs in such bad faith, she was threatened with prison time for not cancelling loans that should have been cancelled years or even decades ago.
The Republicans are just blatantly immoral and governed by shameless greed on the student loan issue, but this does not make the Democrats “good”.
While their rhetoric is 180 degrees different from that of the Republicans, the Democrats, too, have demonstrated that they also have every intention of perpetuating this catastrophically failed loan program. Joe Biden, in fact, deserves a huge amount of credit for creating this predatory loan program, and all indications are that Kamala Harris could even be worse.
I will do a deep-dive on the Democrats in the next article.
Alan Collinge is Founder of StudentLoanJustice.Org, and Author of The Student Loan Scam (Beacon Press).
If you are a student loan borrowers, you should sign this petition, and join this group.
