Student loans ripe for takeover

What would you think about a law that saved billions of tax dollars while providing American college students with more affordable, dependable student loans?

Unless you’re used to getting paid billions for doing next to nothing – like the private student loan industry is – I’m guessing you would think that law was a darn good idea.

Last month, the U.S. House of Representatives voted 253-171 to pass the Student Aid and Fiscal Responsibility Act (SAFRA). If passed by the Senate and signed by President Obama, this legislation would expand higher education, help fund school construction and support early childhood learning.

And, if those gains were not enough, SAFRA would also make more financial aid available to students – and save the government money at the same time.

“Impossible,” you say? Well, hold on to your tea bags folks, because SAFRA is one big-spending government takeover every honest fiscal conservative should support.

According to a report by the national Parent Teacher Association, SAFRA would spend more than $90 billion on improving the U.S. education system over the next 10 years. $40 billion would be spent to increase Pell Grants, $10 billion to help community colleges improve job training, $7 billion to build and modernize schools, and billions more to provide direct federal loans to college students.

“The President’s proposal provides a comprehensive and reliable solution for today’s students while saving taxpayers over $4 billion a year,” Secretary of Education Arne Duncan said at a U.S. House Education and Labor Committee hearing in May.

And while increased federal spending on education is always a worthy exercise, what makes SAFRA unique is how it would raise the money needed to achieve its lofty goals. To come up with the $90 billion over 10 years, this legislation would simply stop subsidizing the private student loan industry in this country.

It’s really just that simple.

Currently, the Federal Family Education Loan program (FFEL) pays private lending institutions billions of dollars in fees every year to loan American tax money to college students. Instead of continuing to provide this annual corporate welfare to private lenders, SAFRA would allow all federal student loans to be made directly to students.

But why does the U.S. government give billions to private lenders every year just so these lenders can loan our own money back to us? And why is Uncle Sam required by law to cover 97 percent of the debt if student borrowers default on their loans?
The answer is both sad and funny. The FFEL program, it turns out, was devised by government bureaucrats trying to solve a problem created by government accountants.

The FFEL program (pronounced ‘fell’) was created in 1965 as a response to arcane federal accounting rules that recorded direct loans to students as annual losses. And although federal tax money subsidized every FFEL loan made through private lending institutions, these ‘private’ loans were only recorded as losses if the student defaulted.

After President George H.W. Bush revised these accounting standards in 1990, the Clinton administration began a direct loan program in 1993. Instead of paying out 15 percent of the loan amount to private lenders as a fee, this new direct student loan program actually earned about a two percent profit, according to an exhaustive analysis of the student loan industry published in August by Rolling Stone writer Tim Dickinson.

Getting SAFRA passed by the U.S. Senate and onto the president’s desk seems like the proverbial ‘no-brainer’ to real American fiscal conservatives. Even if you hate Obama, you have to prefer earning billions of dollars in profits to simply giving them away.

But there are plenty of corrupt pseudo-cons out there who are rallying hard against this legislation. And these contemptible corporate shills – Blue-Dog Democrats and Red-State Republicans alike – are being fed campaign donations by an army of financial industry lobbyists who stand to lose billions in profits if SAFRA becomes federal law.

One such group of financial industry hucksters is the American Student Loan Providers (ASLP). They represent the nation’s leading private, nonprofit and state-based education and financial organizations that provide federally guaranteed student loans through the FFEL program, according to the ASLP Web site.

Having the government take over all federal student loan originations, “would involve one of the largest expansions of a government program in recent memory,” according to one ASLP policy statement, which also happens to be quoted on, the Web site of congressional Republicans.

I guess Republicans in Congress figure it’s better to give away billions of tax dollars every year rather than to earn a profit by helping American students. Anti-Obama politics are one thing, but not supporting legislation that saves billions of tax dollars and helps educate U.S. college students just seems – what’s the word – unpatriotic.

But regardless of such partisan politics, SAFRA represents a bushel full of carrots for the American people – without any sticks. Providing a secure source of funding for college students is certainly good public policy. But doing so at a profit rather than at a loss is something even rarer in federal legislation: it’s good business.

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