Conservatives Decry Obama Spending Cut

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THE PLANK FEBRUARY 27, 2009

Conservatives Decry Obama Spending Cut

About fifteen years ago, Steve Waldman wrote a good little book about Bill Clinton's attempts to create a national service program and reform student lending.The student lending program was wildly inefficient. It went through private lenders, but the governemnt guaranteed all loans from default, which made it a no-lose deal for the lenders. Clinton proposed to cut out the middleman and have the federal government issue the loans directly, thus saving taxpayers billions of dollars.

As Waldman recounted, the student loan industry assailed this budget-cutting measure as big government and forced a compromise. The government could make direct loans, but private lenders would compete against them. As it turned out, private lending offered higher interest rates to students and higher cost to the government. A big student loan scandal came to light in 2007, which basically involved private lenders bribing colleges to steer students into their less efficient program. I wrote about this in a column at the time.

Now President Obama's budget proposes, again, to zero out private lending, thus saving $4 billion a year for taxpayers. Conservatives are again crying "government takeover," in keeping with their philosophy that expensive government programs that create huge private windfalls are superior to cheaper government programs that don't. This is the kind of small battle that shows a lot about the state of reform and the power of lobbies. It will be fascinating to see if Obama can achieve a total success where Clinton had just a partial success.

--Jonathan Chait

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