by Alan Shihadeh
Efforts to undermine financial aid to college students have been forwarded, it seems, by members of the MIT Corporation, the Institute's board of trustees. Congress recently voted to cut between $5 and $10 billion from the student loan program and eliminate an estimated one third of the federal investment in all education programs by the year 2002. Along with these cuts has been a push to eliminate or severely cap Stafford direct loans -- a program in which about 3,100 MIT students participate. The direct lending program was created in 1993 as a way for the federal government to provide loans directly to universities, eliminating the thousands of banks and loan agencies that act as middlemen -- a "single payer" system. This new arrangement has been beneficial to students and the Institute in a number of ways. According to Stan Hudson, director of the MIT financial aid office, "direct loans are a dream compared to indirect loans. With indirect loans students had to go to the bank, apply for the loan, get it approved, wait for the check to come, get 'unpaid' invoices from the university, go to the bank and find out why the check hadn't been sent, get sent back to the university to find out why it hadn't gotten there, and on and on... It was a pain for our office and the students." Direct loans not only reduce paperwork and headaches, they are also more cost-effective than indirect loans. When the highly popular direct loan program was proposed, it was projected to save taxpayers between $2 and $4 billion over the first five years it was implemented. The enabling legislation, the 1993 Student Loan Reform Act, called for a gradual replacement of indirect loans with direct loans. The substitution was to be completed by 1998. That is, by 1998, 100% of the federal guaranteed loans would be administered directly to colleges and universities, with no financial intermediaries. By the time the Student Loan Reform Act was passed, however, banks had been able to lobby Congress to limit the share of direct loans to 60% of loans in 1998, thereby preserving their role as intermediaries. This is no small wonder -- it is through that intermediary role that banks are able to skim profits from borrowing students in the form of loan fees. Education Secretary Richard Riley estimates that the banking industry stands to gain as much as $9 billion in profits over the next 7 years if direct lending is eliminated. Banks and loan management companies have continued their lobbying efforts against direct loans, with the goal of completely eliminating the program. Their activity has paid off: the House struck direct lending from the current budget bill, while the Senate capped it to 20% of federal student loans. The expected compromise between the House and Senate leadership will cap direct lending to 10%; currently, direct loans account for about 40% of all student loans. Because indirect loans are guaranteed by the federal government -- that is, if a student defaults, the government covers the loss -- the fees and the interest banks collect are essentially gifts from taxpayers to banks. Some analysts refer to this as "corporate welfare" or "welfare for the rich." The MIT "Board of Trustees" Citibank has been at the forefront of lobbying Congress to eliminate direct lending. For these efforts, Citibank was cited as the "Hog of the Month" in October by the Campaign for an America that Works. The Campaign reported that Citibank, the largest originator of federal student loans in the country, made $54 million in fees alone from guaranteed student loans in 1994. Indeed, it was an outstanding year for Citibank and its Chairman John Reed: the company reported a record high net income of $3.4 billion. The 3,100 MIT students that could be affected by Citibank's efforts to eliminate direct loans may want to take special notice: the chief "hog" is a lifetime member of the MIT Corporation. John could not be reached for comment. While Citibank is the largest prime originator of student loans, the Student Loan Marketing Association ("Sally Mae") actually manages the funds, or "buys" the loan portfolio from Citibank. Unlike Citibank, Sally Mae is completely dependent on the money it makes from managing commercial student loans, and is therefore all the more committed to eliminating direct lending. Its revenue fell 26% and 25% in the first and second quarters of 1995 compared to the same period last year, largely as a result of direct lending. Naturally, Sally Mae, under the command of its President and CEO Lawrence Hough, has been lobbying hard to eliminate direct lending. And their efforts have not been confined to Capitol Hill. In 1993, Robert Kraig, a University of Wisconsin student, reported that representatives of SLMA approached him and a fellow student in order to organize and fund a "grass roots" student group to oppose direct lending. The case became a scandal when Senator Paul Simon publicized it. Again, MIT students may want to take note of who the Institute's guardians are: like his Citibank counterpart, Lawrence Hough is also a member of the MIT Corporation. The Big Picture While John and Lawrence are clearly undermining our ability to get student loans so that they can continue to feed on public funds, it is a little unfair -- apart from pointing to their overt conflict of interests -- to single them out without noting that "corporate welfare" is the norm in this country, and as CEO's they're doing exactly what their jobs require: maximizing profits. It is utterly irrelevant to them -- And to the stockholders to whom they answer - whether they fleece students or the public in the process. Take, for example, Joseph Gavin, who is also a life-member of the MIT Corporation and happens to be the CEO for Grumman Corporation, a weapons manufacturer. According to the House Progressive Caucus, which last month presented the Corporate Responsibility Act, Grumman, as a weapons contractor, will take part in a $3.5 billion dollar subsidy provided by US taxpayers to foreign purchasers of US-made weapons. Another indirect gift from taxpayers to the corporations is another reason that the rich get richer. And for some reason we hear no righteous demands of "personal responsibility" in this case or others like it. Like Exxon -- whose retired President of Research and Engineering, Edward David, is also a life member of the MIT Corporation -- benefits from a $3.2 billion grant program for the development of fossil fuels and nuclear energy. Exxon's most distinguished welfare caseworker, Bill Clinton, returned from his trip to Indonesia last year with plenty more goodies for the welfare baby: a $35 billion offshore natural gas field project and a new power plant project which US taxpayers will fund through the US Export-Import Bank, "part of new US 'Tied Aid' credit offers," the Financial Times reported. Of course, these projects are as oriented to helping ordinary Indonesians as they are with helping American taxpayers -- zero. On that trip Clinton also secured contracts for GE, Hughes, Fluor Daniel, and other major corporations. Of course, welfare for the rich is not discussed in these terms in the US mainstream press. Take another example, one that in some ways parallels the Stafford direct loans cuts: universal access to healthcare, a major campaign issue in the 1992 Presidential election. While Republicans and Democrats differed in the details, one major feature of both parties' proposals was that the intermediary role of the insurance companies should be preserved. That is, like the indirect student loan program, payments for medical services would be made through insurance companies to healthcare providers, costing the public billions of dollars in what would amount to another huge transfer of wealth to the rich. It was irrelevant to either major party that 2/3 of the public have regularly (in opinion polls) called for a "single payer" national health insurance system that exists in every other industrial nation. Despite its popularity -- a remarkable fact given the media's exclusively negative portrayal of "socialized medicine" -- this option was from the outset deemed "politically unrealistic." Again, this is no small comment on whose interests are attended to in the formulation of social policy. To take another example, the Pentagon's primary mission since World War II -- apart from bombing the 3rd World -- has been to provide a public subsidy to high-tech industry. Sold to Americans as the price for national security and freedom, weapons spending in reality masks a system in which the public bears the cost of developing new technology, while the resulting profits are appropriated privately. As Stuart Symington, the first Secretary of the Air Force pointed out in 1948, "the word to talk was not 'subsidy'; the word to talk was 'security'." This "national security" system has been the lifeline for some of the biggest welfare recipients ever: Digital, IBM, and Boeing, all of which are represented on the MIT Corporation. That the defense budget has never been rooted in security needs is re-affirmed when we consider that long after the Communist Threat has disappeared, a seamless policy of ever increasing expenditures persists. (When Clinton came to office, he proposed a $25 billion increase in military spending.) At $290 billion per year, it currently stands as the single largest discretionary item on the federal budget, dwarfing the much scrutinized and maligned $16 billion spent on Aid to Families with Dependent Children, which accounts for about 1% of federal spending. MIT has lived in large part off the scraps of this military-welfare complex through the research grants provided by it. At the weekly Committee for Social Justice lunch table last Tuesday this fact loomed large for Larry Bacow, the faculty chair, as he discussed what to do with ROTC, and what its elimination might mean for MIT's continued role in the high-tech wel/warfare system. Of course Larry wasn't so vulgar as to frame the issue with such openness, but instead spoke of how it might be better to change the military by "constructively engaging ROTC" and "exposing the cadets to the diversity of MIT," rather than simply kicking them off campus. "Where would we draw the line?" he pleaded. "Would we also stop taking DOD research funding?" So far we've looked only at the "spending" side of the federal ledger. But as any graduate student is aware, a hundred dollar deduction from your rent is the same as an extra hundred dollars in your monthly stipend. So what about tax-breaks? The House Progressive Caucus identified, rather conservatively, more than $800 billion in tax-cuts and subsidies for corporations and the rich that could be eliminated over the next 7 years. Incidentally, it is not just corporations and big stockholders that benefit from welfare economics. The coordinator class (professionals, managers, professors, engineers), for which most MIT students are being trained, is also getting more than its share in welfare. For example, the Center for Popular Economics (Amherst) estimates that when we consider direct benefits and tax breaks, an average household with income under $10,000 receives about half the welfare provided to households with income over $100,000. For example, 80% of the $49 billion in mortgage deductions claimed in 1993, went to families with incomes over $50,000. In fact, total payments to the poor "add up to less than the three largest tax breaks for the middle class and wealthy: deductions for retirements plans, the deduction for home mortgage interest, and the exemption of health-insurance premiums that companies pay for their employers," according to Micheal Wines in the New York Times. While the numbers show that federal welfare overwhelmingly goes to the rich, the popular perception remains that immigrants, people of color, and teenage welfare mothers -- not our "friends" on the MIT Corporation -- are sucking the system dry. For example, Holly Sklar, in Chaos or Community? (South End Press, 1995) cites a 1994 poll of voters which found that 1 in 5 thought that AFDC was the single largest federal budget item. She notes that "the gap between image and reality is vast... the myth of an intergenerational Black matriarchy of 'welfare queens' is particularly disgusting since Black women were enslaved workers for over two centuries and have always had a high labor force participation rate and, because of racism and sexism, a disproportionate share of low wages and poverty." Making the connections So what does all this have to do with cuts in student aid? The point is that we must recognize the root of the problems and not simply "swing at the branches." The challenge, it seems, is not only to demand the restoration of student aid, but to frame our responses in ways that question how economic policy is made -- whether important decisions remain the purview of economic elites, or whether they are made democratically. If we agitate only around the single issue of student aid, and don't link it to the larger questions of who gets to decide, we may win now but the victory will be vulnerable to the future whims of these elites. If, on the other hand, we begin with an understanding of the institutional context, we may be able to avoid visiting these issues over and over again. The choice is ours.