Right now, Congress is figuring out how much extra it’s going to cost students and taxpayers to pay for college, because private banks don’t want the government to lower the interest rate they can charge on student loans, cutting into their profits. On one side of this issue are the six million students who borrow some $27 billion a year from private lenders. On the other side is the powerful banking industry, which gave members of Congress $15 million in 1995-96, and then poured another $5 million into their campaign treasuries last year. Read the entire e-mail bulletin, Ouch! #1 to find out more

For 33 years, bankers have profited from a cozy deal allowing them to charge students, once they leave school, 3.1 percent over the rate on a 91-day Treasury bill. (Think of it as a variation on the banker’s old-fashioned 3-6-3 rule: borrow money from your depositors at 3 percent, lend it to others at 6 percent, and be at the golf course at 3.) This assured profit was not set in place to protect lenders from students defaulting on their loans; the government guaranteed the loans as well.

To the dismay of lenders, the 1993 budget deal included a provision changing that formula, effectively cutting interest rates for new student loans beginning this July. Today, the interest rate on government-backed student loans is about 8.25 percent. Under current law, that’s supposed to drop this summer to about 7.1 percent. A student who borrowed, say, $20,000 to be paid back over 15 years would save almost $2,500.

So guess what. The lending industry says this rate will be too low for them to make a profit (even though people shopping for a house right now can get a 15-year mortgage at even lower rates!). When the banks complained, the Clinton Administration and Congress offered to change the law so they can charge students a higher rate. Under their compromise plan, our hypothetical student would lose $700 of what she would have saved over the term of her loan.

It gets worse. The bill approved by the House and Senate education committees asks taxpayers to fork over an extra $1.5 billion to the lenders as a "sweetener" to get them to go along with the deal—USA Today called this a "taxpayer-financed bribe." (Two weeks before this deal cleared the House committee, its chairman, Rep. Bill Goodling (R-Pa.), raked in $14,250 in $250 and $500 checks from 48 employees and lobbyists of the USA Group—the nation’s largest student loan guarantor—at a fundraiser hosted for him by the company’s president.) The Congressional Budget Office has estimated the cost of subsidizing the bankers could actually hit $2.76 billion. This new bank boondoggle is expected to pass the House the week of May 3 and then await action by the Senate.

To find out more about the student loan fight, visit U.S. PIRG’s Web site: www.pirg.org, and look for the special section on student loans.