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Students and Big-Money Politics

Why Students Should Care About Campaign Finance Reform

College is no longer optional - it's an economic necessity. In 1997, a worker with a bachelor's degree earned 76 percent more than a worker with a high school diploma. Yet, compared to other industrialized nations, this country does little to help students finance a college education. Unfortunately, special interest campaign contributions play a critical role in burdening students with decades of debt simply for getting an education.

It's in Your Interest
The student loan industry has students at its mercy. It is nearly impossible these days to graduate with a four-year degree without also amassing at least several thousand dollars of student loan debt. A person who graduates from a university often won't be free of a $20,000 student loan debt until in their late 30s. By then they will have spent nearly $35,000 on a $20,000 loan - $15,000 worth of interest.
What do student loan interest rates have to do with the generous campaign contributions of the banking industry?

Since 1965, taxpayers have heavily subsidized the private student loan industry, through federal guarantees of loans and other financial perks to encourage banks to loan students money. The idea has been to make higher education accessible for anybody who pursued it seriously.
In July 1998, when Congress debated the student loan program as part of the Higher Education Amendments of 1998, Sen. Tom Harkin (D-Iowa) made a modest proposal. Why not cut, by 25 percent, the origination and insurance fees students pay to secure their loans? The cut would save students $170, which the senator pointed out could buy a lot of books.

"[Students] are frustrated when they go in and borrow the money and they pay the fee, and they get less money than what they borrowed," Harkin said on the Senate floor. "And then when they pay it back, they even have to pay interest on the money they never got. Very unfair."
The Senate, however, rejected Harkin's amendment, by a vote of 56 to 41. That did not stop Congress from approving, however, about $1 billion in new taxpayer subsidies for banks. The new subsidies came to assure banks that the cost of new, lower interest rates approved as part of the bill would not come out of their pockets.

Fast forward to the fall of 1999. This time, the student loan industry decided that it was tired of interest rates being linked to government securities. Another lobbying campaign on Capitol Hill won the banks what they wanted - to link loans to commercial interest rates instead. The U.S. Department of Education estimated that the change is worth $1.7 billion in profits and subsidies for lenders, including $692 million for Sallie Mae alone, which controls nearly 40 percent of the market nationally.
Sallie Mae has given $562,300 to candidates and parties since 1997, of which 60 percent went to Republicans, according to the Center for Responsive Politics. The banking industry as a whole is a routine source of generous campaign contributions - $43.7 million to candidates and parties since 1997 alone, 65 percent to Republicans.

Charging Students for Their Own Hype
Credit card companies want students - badly. And they want them to charge large amounts at high interest rates - often in the range of 16 percent - when they don't have any real income. To get to students, credit card companies often pay off their college or university. Sometimes they pay directly to purchase students' names and addresses, so they can send slick offers through the mail. Companies now even "donate" money for scholarships or other "feel-good" programs. For example, credit card giant MBNA America Bank has funded a career center at Georgetown University and recently gave the university a targeted grant of $7 million for a cultural arts center. The end result is the same though - MBNA gets a list of student names to market their cards.

MBNA happens to be a major campaign contributor - $2.8 million since 1997 to candidates and parties, of which 84 percent went to Republicans, according to the Center for Responsive Politics - and was a top donor to George W. Bush's 2000 presidential campaign.

From Public Campaign's "Why Students Should Care About Campaign Finance Reform"


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