Rep. Maxine Waters apparently has no idea that the federal government nationalized students loans over a decade ago despite chairing the most powerful committee in the country that regulates the banks.
During a House Financial Services Committee on Wednesday, several representatives from the nation’s largest banks took questions on a range of topics.
But one of the most interesting moments came when Waters got a lesson on the student loan crisis in the United States and that she should actually be mad at former President Barack Obama — not big banks.
Waters began with a long-winded diatribe about how big banks should be playing a role in the recovery of the financial sector in the U.S. following the 2008 recession.
After largely blaming the “megabanks” for the current student loan crisis, Waters asked the group of representatives to explain what they are doing to help student borrowers.
“Today, there are more than 44 million Americans that owe — there’s a student loan crisis. $1.56 trillion in student debt. Last month, this committee received testimony that, last year, 1 million student loan borrowers defaulted, which was on top of the 1 million borrowers who defaulted the year before. What are you guys doing to help us with the student loan debt? Who would like to answer first?” Waters asked.
None of the representatives said anything because they didn’t have a role in financing student loans. Around 2010, Obama ordered that the government take that over, which meant these banks no longer issued student loans.
When none of the bankers stepped forward to answer, Waters called out Bank of America CEO and Chairman Brian T. Moynihan.
“We stopped making student loans in 2007 or so,” Moynihan said, which caught Waters off guard.
CitiGroup CEO and Chairman Michael L. Corbat followed up by saying his bank stopped in 2009.
Jamie Dimon, the CEO and chairman of JPMorgan Chase, point blank reminded Waters that Obama ordered the government to intervene and take over student loans.
“When the government took over student lending in 2010 or so, we stopped doing all student lending,” Dimon said.
As several of the the bankers informed Waters, the U.S. government largely took over student lending shortly into Obama’s first term in office.
According to analysis from Investors.com, Obama’s decision to let the federal government to take over student lending added over $1 trillion to the total U.S. student loan burden.
In 2010, Obama eliminated the federal guaranteed loan program, which let private lenders offer student loans at low interest rates. Now, the Department of Education is the only place to go for such loans.
Obama sold this government takeover as a way to save money — why bear the costs of guaranteeing private loans, he said, when the government could cut out the middleman and lend the money itself?
The cost savings didn’t happen. In fact, the Congressional Budget Office just increased its 10-year forecast for the loan program’s costs by $27 billion, or 30%.
What did happen was an explosive growth in the amount of federal student loan debt. President Clinton phased in direct federal lending in 1993 as an option, but over the next 15 years the amount of loans was fairly stable. The result of Obama’s action is striking. In each of the past six years, federal direct student loan debt has climbed by more than $100 billion.
If she’s looking for who is responsible for giving loans to students who can’t afford to pay them back, Waters should direct her questions to Obama, not the banking industry.