Big banks do billions in student loans—and that means less money for you
by Anya Kamenetz
The Student Aid Reward Act (STAR Act) introduced in both houses of Congress March 15 provides an unusually clear test of our national priorities. Do lawmakers really want to increase aid to needy students? Or would they prefer to keep lining the pockets of the banking lobby?
At issue is the Direct Loan Program, one of two federal vehicles for student loans. As the name suggests, direct student loans are made straight out of the U.S. Treasury. Private companies bid for the contracts to handle the loans, without special fees or subsidies. By contrast, in the Federal Family Education Loan program (FFEL), banks and marketers like Sallie Mae receive subsidies from the government as incentives to make student loans, which are also guaranteed by the treasury against default.