Kerry: End Student Loan 'Windfall'

Democratic presidential candidate John Kerry said Wednesday he would pay for his plan to give a free college education to young students who agree to public service by ending a $13 billion "windfall" that banks earn for making government-backed student loans.

Kerry contended that as many as 500,000 young men and women would be lured into public service by his plan, which he said would reinvigorate the nation's commitment to such service. He announced his plan at a roundtable in New York City, saying he was stepping forward with proposals to finance his effort.

Joining Kerry in Harlem at City College of New York were Sen. Hillary Rodham Clinton and Rep. Charles Rangel, both New York Democrats.

"We are going to bring about the largest increase in domestic national service in our history," Kerry said.

"If you're willing to do right by America, then America is willing to do right by you," he said. "If you will serve your country, we will pay for your college education."

Steve Schmidt, a spokesman for President Bush's campaign, said the plan is badly flawed. "It leaves students more than $5,000 short of the full cost of attending college," Schmidt said.

Kerry is spending the week focusing on the spiraling cost of a college education, though the growing violence in Iraq has frequently taken center stage on the campaign trail.

On Tuesday night, Kerry issued a brief statement following President Bush's White House press conference on Iraq, saying Mr. Bush "made it clear that he intends to stubbornly cling to the same policy that has led to a greater risk to American troops and a steadily higher cost to the American taxpayer."

Kerry concedes his proposal for free college educations is expensive — with a $13 billion pricetag — but said it can be financed by restructuring the federally guaranteed student loan programs. Congress sets the terms of student loans.

"Every penny paid for, with money to spare," Kerry's campaign said of his plan.

The federal government guarantees student loans at an interest rate of 3.4 percent. If bank collections fall below that level, the federal government will make up the difference.

With real interest rates higher than that level — and collection levels relatively high — banks are essentially guaranteed a profit under the program, Kerry said.

"This is a windfall that creates excess profits for the banks," he said.

Kerry said he would force banks to bid in an auction for the business of offering student loans, substituting the marketplace for congressional action in setting terms of student loans.

Kerry's campaign estimated that 220,000 young people have been priced out of a college education over the last three years. Offering the prospect of a free college education would lure those people back to higher education, he said.

Campaign officials said projections showed that 200,000 young people would agree to serve a two-year public service commitment, which would pay for the full cost of a four-year college education. Another 300,000 would perform part-time service to get assistance with tuition costs, the campaign said.