The following post is the second written by James Kvaal, a student at Harvard Law School (see the first post here).  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.

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A new Fortune article provides more evidence that federal student loans do more to subsidize banks than help students, as previously described in these pages.  

Fortune reports that Sallie Mae - the King Kong of the student loan industry - has seen its stock has increase by 1900 percent over the last decade.  That's more than eight times faster than the S&P 500.  Sallie Mae was recently rated the most profitable bank in the world by the Boston Consulting Group, considering both returns and risk.

Salle Mae executives have rewarded themselves richly.  Two took home a combined $370 million over the past five years, according to Fortune.  One is now trying to buy the Washington Nationals (whose highest-paid player earns a mere $8 million).

Obviously, student loans need to be profitable or else banks won't make them.  But massive profits like these--including personal fortunes out of the Gilded Age--are a good sign that the highly regulated program is overcharging students and overpaying lenders.  

Congress took a good first step by cutting some lender subsidies in its budget.  Specifically, it eliminates extra payments to lenders in times of falling interest rates and for using tax-exempt financing.  But the budget retains the same essential subsidy scheme.

Student loans need fundamental reform to put students--not banks--first.  For example, we could reduce subsidies by creating competition among lenders, as John Kerry once proposed.  Alternatively, we could expand the Education Department's much cheaper direct student loan program.  Either way, excessive lender subsidies could be redirected to scholarships and more affordable student loans.