MIT Corporation Members Press Congress to Eliminate Student Aid: What Should We Do?

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
	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
	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.

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