Student loans

I've been meaning to blog about the student loan reforms included in the health care reform "fixes" legislation.  Had this happened on its own, it would have been a fairly major deal, yet it happened almost completely under the radar while everyone was so focused on health care.  Not quite sure the Democrats would have pulled off this very smart move above the radar (too many recalcitrant Democratic Senators who want to prop up the wasteful student loan industry in their states).  The New Yorker's James Suriowiecki had a great post about the absurd state of affairs back in September:

 A couple of years ago, in a column about the perverse economics of the
student-loan business
, I wrote, “For decades, student-loan
companies have had one of the cushiest businesses in America.” The loans
companies like Sallie Mae make to students are subsidized and almost
entirely guaranteed by the federal government, so that if a student
defaults, it’s the government, not the private company, that eats the
loss. It’s a quintessential example of the “heads the corporation wins,
tail the government loses” business model—a model that many Wall Street
firms are now reaping the benefits of—and over the years it made student
lending a very profitable business to be in. Now it looks like there’s a
chance, at least, that the entire system is about to be overhauled. The
House of Representatives yesterday passed a bill that would abolish the loan guarantees and subsidies, and
allow the federal government to make all new federal college loans
itself.

There really is no argument against this bill on the merits. Ever since
the Clinton years, the government has been making college loans
directly, and the only reason it hasn’t already become the biggest
player in the market is because the private lenders have lobbied to
restrict it (doing so, of course, with the money they make from
government subsidies and guarantees). According to the Bush
Administration’s own figures, it costs the government four times as much
to back private loans as to make the loans itself, and the Obama
Administration estimates that getting rid of the subsidies and
guarantees will save close to $90 billion.

As to where the savings go, some of it is plowed back into health care and others go into expanding Pell grants.  So, basically, you are creating more government efficiency, and using the money to fund health care and college educations for less well-off citizens and spending less money to go to the vacation homes of bankers.  Sounds like a pretty good trade-off.  Naturally, Republicans are against it.  As nobody else can, Jon Chait eviscerates the incoherence of their support.  This policy is win, win, win all-around.  It's a shame Republicans cannot bring themselves to support something this obviously sensible.    And for students and the American taxpayer– hooray!

 

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About Steve Greene
Professor of Political Science at NC State http://faculty.chass.ncsu.edu/shgreene

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