According to the progressives, this program is just an irrational government giveaway to Big Banks, inherently a waste of government money. Why would conservatives oppose that? Aren't they being hypocritical here, refusing to see that government could just fund the the loan directly and efficiently, cutting out the unnecessary middleman (i.e., the banks)?
The correct response from conservatives is: fine, if you want to play that game, let's get government entirely out of the student loan business... Watch the progressives back away like vampires before the cross, their disingenuous hypocrisy exposed. Of course, they will not explain the real reason for the subsidies, and they don't explain that the it's not the government furnishing the capital behind the loans (tens of billions)--the same capital that banks could loan elsewhere. After all, banks make loans for all sorts of reasons--cars, business, homes, etc. All without the same type of subsidy. So why is it that the government has to "inefficiently" bribe business to make loans in this particular sector? And the average joe might also wonder why the same party now supporting the removal of subsidies was the same party that started the subsidies. "Things that make you go--hmmm."
Apparently the progressives would like us to forget the lessons of Fannie Mae and Freddie Mac--what happened when the the government pressured the mortgage lenders to lend to lower-income, higher-risk applicants (without traditional down payments or sometimes even without income validation). Artificially large numbers of mortgage applicants pushed up house prices to unsustainable levels. We want to trust the federal government with a monopoly for student loans (never mind the fact that the American taxpayer is already on the hook for trillions of federal debt)?
Is this, now and forever, going to put away the fiction behind a government-run health care plan being a "fair competitor" to the private sector? I'm pleased to see the CBO echoing one of the main arguments I've made in past posts:
Premiums in the new insurance exchanges would tend to be higher than the average premiums in the current-law individual market — again with other factors held equal — because the new policies would have to cover pre-existing medical conditions and could not deny coverage to people with high expected costs for health care.What does this mean in practical terms? Basically the government would have to subsidize the government-run plan because people without pre-existing conditions could find better prices in the private sector. What the government would do is essentially take business away from niche insurers whom cater to higher-risk policyholders--and charge a steep premium to reflect their risks. The real no-brainer would be for high-cost patients to flock for the below-cost premiums of the government-run plan which would be politically required to let in all comers. So what will be the end-game is the government getting saddled with all the high-risk patients and there would be heavy political pressure to maintain "affordability" of the plans--meaning the government would have to make up the difference. That's why I've been pushing for strengthening state/regional assigned risk plans.
The reason I'm been pointing out the phony economics of the progressive Democrats involves the same kind of risk assessment for student loans that holds in the case of lower-income mortgage and high-risk health insurance applicants. Student loans require risk assessment--what if the student drops out and doesn't land a job paying high enough to pay off his or her loans? Who exactly pays when a former student turns out to be a deadbeat? The "greedy" lender whom risks his own capital to make it possible for responsible students to attend high-cost colleges?
The fact is, the federal government stepped in to make loans more affordable to students, to increase the number of students eligible for loans. There would be a student loan market without federal government involvement, just as there would be mortgage loans or health insurance without government involvement. In fact, some would argue that there is a cost to the private sector in the sense that subsidized loans compete unfairly at the expense of market-based loans (cf. Wuli's reply), not unlike how the GSE's used bargain Treasury loans to dominate the secondary mortgage market at the expense of the private sector. Exactly how well did that play out for the American taxpayer? Who's on tap for that 50% of the housing market dominated with implicit government backing?
The progressives self-righteously promote themselves as the salvation for college students. Let's think about this--did the risk of making loans to college students suddenly disappear because the federal government is now going to take it out of the wallets of the American taxpayer?
Perhaps we should think more about WHY we now have a bubble in college costs, just like we had a bubble in the housing market. (It might seem strange that I, as a former college professor, am suggesting that.) But perhaps we are running into a situation where increases in college costs have been enabled by subsidized loans to sufficiently high numbers of students, many of whom will likely will never benefit from their college "investment"... Richard Vedder back in 2005 pointed out that there is only a very weak correlation between funding and enrollment, nearly 40% of college students fail to complete their bachelor degrees within 6 years, increases in state funding do not pay off in comparative economic growth (e.g., higher tax rate brackets enabling higher funding adversely affect business growth) and there are a variety of factors accounting for the increases in non-instructional college costs, including a doubling in average support staff per 100 students since the 1970's.
One thing is for sure: the federal government, trillions of dollars in debt, has no competence in the business of banking; where do you draw the line--just college student loans? Who's going to regulate the government bankers? Does anyone expect that the government is going to charge a relevant risk-adjusted interest rate? HINT: Are the Democrats aware of the fact that college students have the right to vote?
Not to mention--does anyone really believe that government student loans come without a price, without strings for the federal government (and Democratic special-interest groups) to meddle in the world of academia?
