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The Government Takeover of Student Loans

John on March 9, 2010 at 10:00 am

The Wall Street Journal outlines the situation:

Congress has already passed laws in recent years discouraging private lenders from making loans without a federal guarantee. But most college financial-aid departments still want private companies to originate and service the guaranteed loans. That’s because the alternative—a public option run by the Department of Education—has been distinguished by its Soviet-style customer service.

The Democratic plan is to make this public option the only option mere days before colleges send out their financial aid packages to incoming students. The House and Senate budget committees issued instructions last year to look for savings in the student-lending program, so the Democrats have prepared in advance their excuse to jam these changes through the reconciliation process.

Former Secretary of Education Lamar Alexander seconded this point in an editorial for the Washington Post:

Today, roughly 2,000 lenders offer government-backed student loans on more than 4,000 campuses. One lender, Edsouth, offers Tennessee students college and career counselors, financial-aid training, and college-admissions assistance; performs hundreds of presentations at Tennessee schools; and works with 12,000 Tennessee students to improve their understanding of the college-admissions and financial-aid process.

Nonprofit lenders such as Edsouth use the revenue generated under the student-loan system to operate and provide these valuable benefits — but, of course, these services cost money. If — under this latest Washington takeover — Edsouth and other nonprofit lenders are prevented from making the number of loans they make today, they will no longer be able to provide these services, depriving students of real choices in lending.

The student loan “Banker of the Year” will be the only student loan banker left calling the shots: the education secretary in Washington. Imagine trying to get all Edsouth’s services from a federal call center.

Steve Bennen of the Washington Monthly decries this all as a “deceptive response.” He eviscerates Alexander’s piece, leaving only a line about DMV level of service and then quotes another liberal blogger to the effect that student loan applicants will still fill out the same forms they always have:

In reality, getting a student loan through the Federal Direct Loan Program isn’t going be any different than it is for the millions of students who are already getting loans through the Federal Direct Loan Program, which involves filling out the same forms you use to get loans under the “give-banks-billions-of-free-taxpayer-dollars” program that Alexander is defending.

Never mind that Alexander’s claim had nothing to do with which forms one will fill out. You see, at base, people don’t need choices. They need efficiency. And if that efficiency doesn’t actually save them any money, too bad. The point is it’s better for everybody (except the loan recipients). But the real benefit is that it’s a great way to screw the shareholders. Those bastard Republican Senators who are pro-shareholder are such jerks!

That’s what it comes down to isn’t it?

Someone in the comments to Bennen’s post points out that the same argument could be made about banks in general. Surely the government could run Visa and Mastercard more efficiently? Why not nationalize checking accounts while you’re at it? Why not remove all evil profits and nasty shareholders from every system. We could centralize it all and let the government do it! It’s a solution to every problem.

People like this can only ever see one side of the pooling equation and it’s not the one that concerned the authors of the Constitution. Their major concern was that power not accumulate in too few hands. I don’t know Steve Benen but I’m guessing he hasn’t spent much time in a real government bureaucracy. He knows not of what he speaks.

Those of us that know better just have to say no.

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Category: Health & Education, Politics |

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