A new bill passed by the Democrat-controlled Congress in October 2007 will cut billions of dollars in student loan subsidies. Shortly thereafter, stocks for the student lending giant Sallie Mae took a dive, as did the shares of other lenders in the student loan market.
Sallie Mae's shares then fell to a five-year low in December 2007. The steep drop in Sallie Mae stock was not caused only by the subsidy cuts. The drop is tied to the overall U.S. economy, including the "credit crunch" and the "subprime mortgage meltdown."
Working-class people are facing foreclosure because of the subprime mortgage crisis. Similarly, many students and graduates are unable to stay current on their student loan payments. The spreading of a crisis through different sectors of the economy is characteristic of the capitalist system.
The plunge in the student loan market will impact more students as it deepens. Already, the Sallie Mae stock dive has led other lenders to scale back discount loans dramatically.
Student loans are not grants; they must be paid back with interest. Tuition for four-year universities costs thousands—sometimes tens of thousands—of dollars per semester, and many students must take out loans to meet these tuition fees along with the other costs associated with school and living away from home. The subsidies that Congress cut existed merely to cushion the impact of interest rates.
Shortly after Congress cut student loan subsidies, the House and Senate passed a $550 billion omnibus spending bill. Bush signed the bill into law on Dec. 27. This appropriation for 2008 included $70 billion for the U.S. wars on Iraq and Afghanistan. No strings were attached to the funding.
The Democrats and Republicans spent weeks grappling publicly over the bill, all the while agreeing to fund the war and hack away at social programs. Many components of the budget were labeled as "emergency funding." President Bush often has used similar language in appealing to Congress about war funding.
The brewing crisis in the economy and the war’s impact on social spending spells trouble for students, former students and working-class families.
