Taking Over the Student Loan Program...or Bust!

Don’t look now, but the Federal government under designs of takeover artists in the Obama administration is engaged in an until-now little-noticed power grab of the student loan business.

It would be accomplished in one fell swoop, away from public view, by linking  student loan-giving to health insurance “reform, ” via a back door effort called " reconciliation.” Slick, eh? What will Big Government fans think of next?

Student loans taken over by Big Government, with a new bureaucracy,  is the object, under the guise, we suppose, of that old trite joke, “we’re from the government and we’re here to help you.” But this is no joke. Big Brother lives and breathes in this control-freak administration.  They covet the student loan business, too. 

How did this attempted takeover happen?  It certainly made few headlines,  but it is no trifling matter. 

The movement statred last September after brewing in the hearts of liberals for years.  A House-passed bill would put 2,000 private lenders of student loans on the sidelines, foisting upon them extraordinary, impossible, unviable standards. Stifling the making of viable student loans in the private sector was the aim. 

The target date for government takeover of student loans is July 1, 2010, according to the House-passed bill last September.  Bear in mind, the bill was passed, without fanfare or vaunted transparency, at all, in September 2009,  with this as a target date for its implementation.  The presumption was that it would be passed by the Senate by then, in some form. 

Proponents claimed the House bill would save $87 billion by substituting a bureaucratic government-run loan program for what private lenders do — that is, making government-subsidized student loans.  Now, incredibly, the administration applies these presumed savings of $87 billion to reduce the costs, of all things!, of its  health care “reform.” dream. 

It’s a mad, mad, mad shell game.   It is also a false presumption of  “savings.”  Even the Congressional Budget Office (CBO) reports savings would be not be $87 billion, not even close.   No, it would be an estimated $47 billion, give or take., if we are to believe its numbers.  Consider, too, the costs of setting up of a new bureaucracy to administer the 19 million student loans each year. 

Spelled out succinctly by Professor Peter Wood at the National Association of Scholars (NAS) website the scheme shapes up this way:

“The health care bill that the Democrats hope to pass by “reconciliation” to avoid the normal Senatorial voting procedure is now being amended to include the administration’s Big Grab on federal student loans. If this works, we will have one bill in which the federal government not only takes primary control of American health care but also simultaneously takes practical control of American higher education.”

In an op-ed in the Washington Post on March 7, Sen. Lamar Alexander (R-Tenn.), onetime Secretary of Education under President George H.W. Bush, says of the current administration’s bold takeover plan:   "While health care ‘reform’ takes the spotlight,” he writes, “the Obama administration is pushing for another Washington takeover — this time, of the student loan system.”  (Why are we not at all surprised?)

Secretary of Education Arne Duncan puts a smiling face on it,  calling it  providing students with “direct loans,” the epitome of efficiency, without bothering the private sector.  Secretary Duncan, an amiable sort, points to alleged savings of $87 billion — er, make that $47 billion?  (Just $40 billion off.  Close enough for government work?)

Big Government (not what he calls it, of course) will take care of the flocks of students who, sooner or later, will be voters.  This brings to life Professor Frederick Hayek’s comments about making folks rely on government, making them subserviant, in his landmark book, "The Road to Serfdom." 

If the underreported takeover plan of the student loan business succeeds, and it might, Senator  Alexander writes: “All 19 million students who want government-backed loans will line up at offices designated by the U.S. Education Department. Gone will be the days when students and their colleges picked the lender that best fit their needs. Instead, a federal bureaucrat will make that choice for every student in America based on still-unclear guidelines.”

Bottom line, says Professor Wood:  “Some 2,000 private lenders will be forced out of this business. Services to [loan applicants] students driven by industry competition will be eliminated in favor of typical federal bureaucratic ‘efficiency.’ “

Why kick out 2,000 private lenders out of the system?  Reported abuses by a handful, such as bribing schools to recommend their loan packages, and some unchecked financial misdeeds, including kickbacks, are a problem that can be dealt with easily, without this legislation.   

Dr. Wood at NAS says private lenders says might have brought it on themselves: “Corrupt practices combined with wildly imprudent financial dealings, opened the way for “reform” that President Obama, Secretary Duncan and the Congressional leadership now intend to push through.”  Make that, “ram through?” What a way to run a railroad.

How to finance all this shady operation and emerge?  Senator Alexander explains in his Washington Post piece: on March 7: 

“Here is what they haven’t told us: The Education Department will borrow money at 2.8 % from the Treasury, lend it to you at 6.8 % and spend the difference on new programs [such as Pell Grants and other government give-away programs]. So you’ll work longer to pay off your student loan to help pay for someone else’s education — and to help your U.S. representative’s reelection.”

Senator Alexander suggests: “If there really is $47 billion in savings to be found, Congress should return it to students in the form of lower interest rates, not trick students by overcharging them so government can create more programs.”