Obama's Costly Student Loan Takeover

Call it Chapter Three (after the $767 billion “stimulus” and the healthcare “reform” scheme) in Barack Obama’s strategy to create an ever-expanding class of Americans dependent upon the government.  The subject of this latest chapter is the government takeover of the student loan program.

Obama and his statist allies in Congress attached this bill to the healthcare legislation.  Now, with the stroke of his pen, Mr. Obama has taken the 15 million college students who chose from 2,000 lenders for their loans, and dumped them into the Department of Education, which will process future loans by means of four call centers.  This will be about as friendly and personal as standing in line to get a driver’s license. 

For years the government’s role was a passive one, guaranteeing loans.  Most students chose from those 2,000 private lenders, banks and some non-profits.  These competed for the student loans and handled all the details of loans they wrote.  For this they received fees from the government.  (Obama and his sycophants in the media called these “subsidies” to make sure we considered them ill-gotten gains.  )

Obama & Co. are touting the “savings” they will reap by taking over the program from the banks.  The Department of Education will borrow student loan money at 2.8% interest and charge the students 6.8%.  What happens to the difference between the two?  This and most of the money the government will “save” by not paying fees to banks to service loans will go toward paying for Obama’s budget-busting healthcare scheme. (Also, Pell grants will be increased a little and some funds will go to community colleges.)

Sen. Lamar Alexander (R.-Tenn.), a former U.S. secretary of Education, proposed an amendment to the takeover bill that would have reduced the new interest rate to 5.3%, creating an average student saving of $2,240 over the life of his or her loan.  He pointed out that the takeover, as written, “will deprive 15 million students of choices, add half a trillion dollars to the federal debt and throw out of work 31,000 Americans who today help students apply for loans.”

Perhaps a few of those workers can be employed at the DoE’s new call centers.  That is, unless this function is farmed out to a company in Bangalore, India.  Oh yes, the Democrat majority voted down an amendment to prevent this, along with one that would prevent convicted sex offenders from getting government-paid Viagra.

From Obama’s youthful years onward, most of the influences on his thinking came from the left.  He has never worked in the private sector, does not understand it and mistrusts it.  He seems to subscribe to the leftist tenet that business people are motivated only by greed.  Thus, he treats government takeover of the student loan program as a “reform” that will benefit all involved.

The only winners here, however,  are the Department of Education bureaucracy and the public employee unions that welcome its expansion.