The following post was written by James Kvaal, a second-year student at Harvard Law School.  Immediately before entering law school, he was a senior policy advisor to Sen. John Edwards.  He has also worked as a policy advisor in the Clinton White House, at the U.S. Department of Education, and for Congressman George Miller.

As Sherlock Holmes observed, sometimes the most interesting question is why the dog didn’t bark.  

The House of Representatives is now considering cutting student loans by $9 billion. Student groups are outraged, but the banks that make student loans– which normally play political hardball – are strangely quiet.  

Industry lobbyists swallowing billions in subsidy cuts?  It’s an uncommon sight in George Bush’s Washington, to say the least.  

But a quick tour of loan industry web sites (here, here, and here) finds no stirring call to arms; a casual observer might miss any mention of the legislation at all.  The trade publication Inside Higher Ed describes on the lenders’ resignation: “The lenders are unhappy about the cuts but seem to recognize that they’re an easy target, because many of them are hugely profitable.”

Another reason the industry lobbyists are so quiet, however, may be because there is less to the lender cuts than meets the eye.  Lenders can live with subsidy cuts because the bill also props up industry profits by reducing competition and increasing student rates.  Students, of course, end up holding the bag.

First, the bill eliminates competition among lenders by requiring all students to pay a 1 percent insurance fee.  In recent years, competition has driven down student fees (and therefore industry revenue).

Second, it penalizes students who want to switch lenders through new fees and higher interest rates on refinanced student loans.  It also prohibits any refinancing until students begin repaying their loans.

Third, the bill doubles up-front fees on the lenders’ nemesis, the Education Department’s direct loan program.  Students who choose to borrow directly from Education, rather than a private lender, will now pay an immediate 3 percent fee.

Finally, it repeals the low interest rate of 6.8 percent scheduled for implementation next year and extends the current floating rate instead.  Experts expect the floating rate to be higher than 6.8 percent in coming years.  

All these fees and interest rates add up.  House Democrats put the tab as high as $5,800 per student.

In other words, the Republican party – which normally puts so much faith in free markets – is willing to sacrifice the benefits of competition.  Instead, it is protecting the special-interest waste spilling over from a Great Society entitlement program.

Higher rates couldn’t come at a worse time for students.  Student loans have become as indispensable to American college students as textbooks and homecomings.  Loans will top $62 billion this year.  That’s more than the total tuition collected by every American degree-granting college and university only ten years ago.  The average loan at public colleges is now nearly $15,000, and students are private universities are borrowing even more.

Massive borrowing raises troubling questions for our future.  We may soon see an indentured generation unable to afford graduate school, buy a home, or enter low-paying careers such as teaching.  Congress should be looking for ways to reduce student debt, not making it more expensive.