Federal Report/GAO Confirms Bush Giving Away $Billions in Federal College Aid to Banks, Padding Their Corporate Profits at College Students' and Taxpayers' Expense

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The Government Accountability Office (GAO) confirmed that George W. Bush Jr. is going out of his way to do special favors for banks administering student loans, diverting resources that could be used to help students paying tuition. While government subsidies have exploded, the New York Times reports that the Bush administration has strong political connections to lenders. “Indeed, [Don R.] Bouc was appointed by the department to serve on a financial aid advisory committee.” And quarterly payments from the government to his company have expanded more than ten-fold since the end of 2002, from $4.6 million to more than $48 million in June. [New York Times, 8/27/04]

A new report from the Government Accountability Office (GAO) confirmed that George Bush is going out of his way to do special favors for banks administering student loans, diverting resources that could be used to help students paying tuition.

Currently, the federal government pays banks to provide loans to students with a government-guaranteed rate of return. But instead of providing a reasonable rate of return, a loophole in the law gives many banks a guaranteed return of 9.5%. With no risk whatsoever, these banks receive a massive subsidy of nearly $1 billion annually straight from taxpayers – money that could be used to expand college access.

While the Bush Education Department claims it is powerless to close this loophole, GAO's report shows the Administration is wrong. The report, subtitled "Statutory and Regulatory Changes Could Avert Billions in Unnecessary Federal Payments," specifically says that GAO "disagrees with Education" and thinks its reading of the law is not right.

Vice-Presidential nominee John Edwards said: “This report reinforces what we already knew: With real leadership, we could close this loophole tomorrow and save billions of dollars. And we could take that money and give it to students who need it. That is what John Kerry will do as President.”

GAO Rejects Bush Reading of Law. The Bush Administration claims that it cannot make rules to close the loophole under the Administrative Procedure Act. GAO writes, "we disagree with Education’s characterization of the case law concerning" the law. GAO went on to note that "we continue to believe that Education should consider all of its options in effecting the desired policy change." [GAO, 9/21/04]

Keeping The Loophole Open Will Cost $2.8 Billion Next Year. If the loophole isn’t closed until next year, the Institute for College Access and Success estimates that the government will spend $2.8 billion in subsidies to pad corporate profits instead of expanding college access. [New York Times, 8/27/04]

Bush Won’t Stop Giving Government Money To His Corporate Friends. While government subsidies have exploded, the New York Times reports that the Bush administration has strong political connections to lenders. “Indeed, [Don R.] Bouc was appointed by the department to serve on a financial aid advisory committee.” And quarterly payments from the government to his company have expanded more than ten-fold since the end of 2002, from $4.6 million to more than $48 million in June. [New York Times, 8/27/04]

Bush And The Education Department Could End Guaranteed Profits Today. The president or officials at the Education Department could end the program and close the loophole at any time. "It is the agency's rules that created the loopholes," said Robert Shireman, director of the Institute for College Access and Success, which published a report today with findings similar to the G.A.O.'s. "It is the agency's responsibility to fix them. It is irresponsible not to act." [New York Times, 8/27/04]

“Everyone's Rushing In Before The Door Closes," said industry analyst Matthew J. Snowling. Almost half the lenders have expanded their portfolios of guaranteed loans in recent years; the volume of loans has quadrupled in just three years. Southwest Student Services Corporation, for example, has more than doubled its holdings of government guaranteed loans in the last two years to $650 million. [New York Times, 8/27/04]

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Phillip Paradis
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