THE PLANK MAY 11, 2009
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One of President Obama's major priorities is making college more affordable, and he now has an historic chance to do that by reforming the way the federal government delivers student loans. Under the current student-loan program, the government essentially bribes banks to lend to students by offering them generous subsidies and promising to take on 97 percent of the risk. As Jon Chait and Kim Clark have written, the program is purely a sop to banking interests--absorbing money that could be used to increase the number and size of Pell Grants. Obama's budget includes a provision to pull the plug on these subsidized loans, saving the government up to $94 billion over ten years, according to estimates from the Congressional Budget Office and the Office of Management and Budget, simply by cutting out the middleman (private lenders) and giving directly to students.
In the 1990s, President Clinton tried to eliminate this wasteful policy. He ultimately failed, after conservatives rebelled against a "government takeover of the student-loan program." So Clinton accepted a compromise, which created a parallel direct-lending program that students would have flocked to if not for loan companies' aggressive efforts to undermine it. (In part, this was accomplished through widespread graft, as in the 2007 student-loan scandal where college-loan officers at various universities received vacations, stock, and luxury goods to steer students to private lenders.)
This time around, however, the president has the upper hand. That's because the private program is insolvent. In May 2008, with America's financial system faltering, private lenders realized they could no longer borrow money at rates that allowed them to make college loans profitable. At that point, Clinton's direct-lending program could have taken over the subsidized system, but lenders raised unsubstantiated fears about the government's ability to oversee so many new loans. They pressed Congress for emergency stopgap legislation to prop up private student lending for the 2008-2009 school year. The bill, Ensuring Continued Access to Student Loans Act (ECASLA), has since been extended until September 2010. In order to keep money flowing to students, ECASLA allows lenders to borrow at a low government rate, ensuring them profitable loans. In addition, it lets banks sell their loans to the government--making their lending programs even more dependent on federal capital and thus even more unnecessary. When ECASLA expires, all Obama has to do is decline to renew it, and private banks' role in student lending will end.
What's more, Obama has successfully lobbied Congress to include reconciliation rules in the current budget, meaning that changes to the student-lending program will not face the threat of a filibuster by Senate Republicans. As with health-care reform and other major initiatives, this gives Obama's student-lending program a far greater chance of passage.
But direct lending has powerful opponents on both sides of the aisle. Free-market ideologues, who hold that a government program is somehow less socialistic when business is allowed to take a huge cut, and legislators who rely on political donations from the lending industry could each thwart Obama's plan. Last month Democrats, signaling their uncertainty, included a nonbinding "Sense Of the Congress" statement in the budget resolution demanding that "any reform of the federal student loan programs ... include some future role for the currently involved private and non-profit entities." And lenders attempting to stay in the game have introduced a seductive counter-plan. Sallie Mae, the nation's largest student-lending company, claims that its approach will recoup 82 percent of the cost savings proposed by Obama. (Sallie Mae has yet to release any detailed numbers. However, the New America Foundation was able to get a copy of the proposed legislative language from an unnamed source.) Sallie Mae's proposal is essentially a version of ECASLA extended indefinitely--which means that the government is already achieving most of Sallie Mae's proposed savings. In addition, Sallie Mae would strip away anti-graft provisions enacted in the wake of the 2007 student-loan scandal, and it would grant itself a de facto monopoly over student loan service contracts.
Facing pushback from his Democratic allies, Obama may be tempted to cave and accept some version of Sallie Mae's plan. But he shouldn't. It's still a huge waste of taxpayer money, it leaves the door open for private lenders to reassert themselves in the future, and it's more expensive for borrowers. Obama should make full use of his current political advantages and cut lenders out of the equation once and for all.
--Barron YoungSmith
10 comments
"Under the current student-loan program, the government essentially bribes banks to lend to students by offering them generous subsidies and promising to take on 97 percent of the risk."
george:
Can you believe bullshit like this? In what other democratic nation do the banks have this sort of power?
And it sums up yet again how crony capitalists shovel cash from Wall Street down to K Street, then over to the White House and Congress. And, in return, the federal government shovels legislation up to New York such that it could have been written by the banks themselves.
Hmm....
I guess when you consider Obama's economic team, it was written by the banks, wasn't it?
So: Only when we start seeing these inherently corrupt and incestuous relationships start to crumble will we see who comes out on top.
george walton
- iambiguous
May 11, 2009 at 8:05pm
All of a sudden, I find myself having doubts regarding capitalism as some form of ideal, or even tolerable, economic theory...
- GSpinks
May 12, 2009 at 11:27am
Very interesting post.
But I want to comment on another issue: the use of "an" before "historic." Would you ever say "an history book" or "an house" or "an hobo" or "an hot day" or "an horror movie"? We don't say "an" before h-words *unless the h is silent* and the word begins with a vowel sound, like "an hour" or "an honor." Historic is not such a word -- we say the h. We've been schooled in this odd rule that appears to apply only to one word -- historic -- and so, I fear, "an historic" sounds more right to us than "a historic," but it's not too late. Brave men and women must take a stand....
- jhildner
May 12, 2009 at 12:04pm
Republicans believe Democrats buy votes with the Student Loan Program and they want in on the action. This is why they legislated the subsidy to banks. That and the banks wanted the profit streams. So much for efficient government.
- rmabbott09
May 12, 2009 at 2:51pm
We say "historic" differently depending on how we're using the word. The way I just used it, we pronounce the "h." But we say "an historic" because when we say "historic" is preceded by "an", the "h" IS silent, and that's because it's easier to say that way. This is not the case with "a house" or "a hobo," which only Cockneys would pronounce without the 'h" (and, tellingly, Cockneys DO say "an 'ouse" or "an 'obo."
Anybody who wants to go to the trouble of using "a" and pronouncing the "h" in "historic" is free to do so, and, indeed, if you insist on pronouncing the "h," then using "a" is the only way to do it. Grammar is descriptive, not prescriptive. We musn't confuse pedantry with bravery.
- jbcsinc
May 12, 2009 at 4:54pm
Sorry for the sloppy self-editing -- the comment above should read ". . . when we say 'historic' preceded by 'an' . . ."
- jbcsinc
May 12, 2009 at 4:58pm
jbcsinc -- Well, I disagree that grammar is wholly "descriptive." There is such a thing as a common grammatical error, just as there are common spelling errors and common punctuation errors. Obviously, rules change over time in response to usage, but the moment of that change is hard to pinpoint. What's more, merely having rules at all implies a degree of rationality and consistency. For example, you don't simply argue, "Well, this is what people say, so that's the end of it." You also make an argument that "an historic" in fact conforms with the "an-before-silent-h-rule." I don't think that's quite right, though. The h in historical is never silent, as far as I can tell, unless we're speaking quickly and that's only because we're saying "an" before it. Whether to say "an" in the first place is the issue. The h is, however, soft, and that's because the emphasis is on the second syllable. After posting my pedantic post, I hunted around on the internet, and found someone advocating the rule that we *do* use "an" before three+ syllable h words where we do say the h but the emphasis is on the second syllable. This person's examples were historic, historical, habitual, hereditary, hypothesis, and I don't remember the others. Problem is, I'm not sure we actually do use "an" before those other words. Do you say "an hypothesis"? I don't know. Seems to me that "an historic(al)" is in a weird class by itself.
- jhildner
May 12, 2009 at 9:48pm
jhilder -- I haven't hunted around the internet much, and I was shooting from the hip. (Can one shoot from "an hip"?) I apologize for the pedantry crack -- I tend to fall toward the descriptive camp and am wont to overreact when I sense an argument that the RULE must be followed. Clearly, that's not your position. I can see an argument for "an habitual" maybe, on the same grounds as "an historical," but certainly not "an hypothesis." The Gregg Reference Manual that I can grab without even standing up reaches, I believe, a reasonable conclusion: "In speech, both 'a historic occasion' and 'an historic occasion' are correct, depending on whether the 'h' is sounded or left silent. In writing, 'a historic occasion' is the form more commonly used." In other words -- too close to call? Spoken = more descriptive, written=more prescriptive? Maybe spoken versus written is the key distinction -- my friend the cockney would say "an 'ypothesis", but cockney isn't a written language. What do you think?
- jbcsinc
May 13, 2009 at 4:53pm
Sounds good, man. I'll go with that. I admit that "an historic" doesn't hurt my ears as much as my eyes....
- jhildner
May 13, 2009 at 5:56pm
They don't spell it out in much detail, but I think National Review 's editors may have just
- Anonymous
May 22, 2009 at 4:12pm