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SAVE THE WASTEFUL, INDEFENSIBLE STUDENT LOAN PROGRAM!
Obama had a nice line recently. Being president means you're faced with a lot of hard problems, he said. If the problems weren't hard, after all, then someone would have solved them before they got to you. That's usually true, at least. But the student loan program is a simple problem. I'm going to let Jon Chait describe it:
For many years, the federal government supported college education by guaranteeing bank loans to students. If a student defaulted on his loan, Washington would simply pay back the difference. In 1993, Clinton undertook to reform the program by cutting out the middlemen and simply having the federal government issue the loans directly. Clinton hoped to save money for the government and plow some of those savings into lower interest rates for students. Of course, private lenders who benefitted from the no-risk profit stream balked and forced a compromise whereby both kinds of loans--guaranteed private loans, and direct loans from the government--would exist side by side.
Recent years have shown beyond a doubt that the direct lending program works better. Every independent analysis--by the Congressional Budget Office, by the Office of Management and Budget under each of the last three presidents, and by the New America Foundation--has found that direct lending is cheaper. The guaranteed-loan program managed to cling to life through its congressional patrons and through simple graft. In 2007, a major student-loan scandal emerged when it turned out that private lenders paid off college administrators to drop out of the direct lending program and steer students to them.
Obama thus proposes to save the taxpayers more than $4 billion per year by ending the guaranteed loans. This is as straightforward a case as you can find of a fight between special interests and the public good.
Its simplicity is probably why Obama eliminated it straight-off in his budget. But the budget hasn't passed yet. And even bad ideas have their defenders. The New York Times reports that the student loan industry has brought in some heavy hitters to defend their giveaway. "Tony Podesta, whose brother, John, led the Obama transition, and Jamie S. Gorelick, a former deputy attorney general in the Clinton administration." Whatever Podesta and Gorelick are costing is nothing compared to what Sallie Mae stands to make if the program is preserved. And they're really the program's only hope. If they can save it, they'll be legends in their time.
This will be a good test case for the power of lobbyists amidst the Obama administration. It's an indefensible program in a time of unsettling budget deficits. The chosen lobbyists are Democratic heavy-hitters. Their targets are Democratic congressmen. They will be offering contributions for Democratic campaign chests and raising funds for Democratic campaigns. Anyone want to take odds?
COMMENTS (7)
NPR ran a story on Sallie Mae staging a rally for 400 employees, and its management talking about bringing jobs back from India.
Well, sorry, but fuck them. The constituency of people who would like the senior executives at Sallie Mae strung up from lampposts is much bigger than the one to preserve the guaranteed private loan system.
Posted by: pseudonymous in nc | April 13, 2009 3:53 PM
This is the type of thing where the fourth estate can play a huge difference: shining a light on these activities (which the NYT story does) and then following the issue through the budget process guarantees that the congressmen and congresswomen involved will have to face a situation in which they look like they're being corrupted by voting against this.
Posted by: Rhoda | April 13, 2009 4:08 PM
It's worth mentioning that the private banks (and others) that got into the student loan biz refused in the last couple of years to do any lending because the default rate was too high. They forced the biz back onto the gov't.
And now they want it back since it has gov't guarantees and those banks sure do luv gov't guarantees.
There is no shame in the quarters of the financial world: just greed.
Posted by: JimPortlandOR | April 13, 2009 4:08 PM
Alas, too late for me. I was snookered into a loan for 40k from Sallie Mae courtesy of my institution of higher learning.
At the time, I thought it was a federal agency.
Posted by: leo | April 13, 2009 4:25 PM
It is great that Ezra high lights this issue in exactly right manner. We need this kind of critical appraisal of this issue from progressive media.
Whether it is F-22 Raptor or Sallie Mae viability; these Congressmen and women (predominantly Democrats) are always going to bring in the ‘job loss issue’. Look, people can get employment in prostitution, piracy and drug gangs too. Does it mean society should not stop those? No, I am not demented to equate a job at Sallie Mae with prostitution and pirates. But the point is, right question is not how to keep these jobs but what can State do to move them over to other jobs. Otherwise so many of these structural deficiencies in American Economy will never get addressed because some Joe is employed. Otherwise American Economy would have no changes over years and we all would be still harvesting crops on fields and fishing in rivers.
The disgusting part of American Higher Education is the amount of debt load these students carry in their professional life. That forces them to go for high paying jobs regardless of larger utility to society (the same way Sallie Mae executives are earning their salaries). We all know what happens after that. Megan on Atlantic had good discussion about that on her blog. Why in the world Doctors in America need 8 years of education after High School? Are American Students inferior to medical students from other countries? Or something else is going on here? Why our Congress is not asking these vital questions?
MBA, Lawyers and 8 years of Medical Education – with hundred thousands of student debt loans; that cycle must break. We have to strive for a day when majority of students from American Universities can pass professional education without the crushing debt limit.
If these stupid Congress folks want those Sallie Mae employees on the street, why are we waiting for students not to come on roads? They can come in thousands all across America. Are these Americans Politicians drunk or what to ignite the fury of University and College going crowd – politically the most active constituency
Posted by: Umesh Patil | April 13, 2009 5:13 PM
Never bet against Obama.
Posted by: JB | April 13, 2009 7:05 PM
I don't even want to start on what I currently owe Sallie Mae. As it is, I wasn't even given an option of federal funding at all, only Sallie Mae. And until now, I never even heard of that scandal... But I would definitely be for eliminating the middleman in this aspect. From everything I've read in the past years, the govt' is the way I should have gone to get a loan all along. As it is, I found out I didn't even like what I was going to school for, and didn't finish, and my loan is a serious pain in my ass.
Posted by: Deadling | April 20, 2009 6:29 PM