THE FIGHT OVER SAVING MONEY ON STUDENT LOANS…. Back in February, during one of his weekly multi-media addresses, President Obama predicted fierce fights with agents of the status quo. “I know that banks and big student lenders won’t like the idea that we’re ending their huge taxpayer subsidies, but that’s how we’ll save taxpayers nearly $50 billion and make college more affordable,” the president said, adding, “I know these steps won’t sit well with the special interests and lobbyists who are invested in the old way of doing business, and I know they’re gearing up for a fight as we speak. My message to them is this: So am I.”
Well, Mr. President, here they come.
The private student lending industry and its allies in Congress are maneuvering to thwart a plan by President Obama to end a subsidized loan program and redirect billions of dollars in bank profits to scholarships for needy students.
The plan is the main money-saving component of Mr. Obama’s education agenda, which includes a sweeping overhaul of financial aid programs. The Congressional Budget Office says replacing subsidized loans made by private banks with direct government lending would save $94 billion over the next decade, money that Mr. Obama would use to expand Pell grants for the poorest students.
But the proposal has ignited one of the most fractious policy fights this year.
That’s a shame, because Obama is overwhelmingly right on this one, for all the reasons we talked about a few weeks ago. In a nutshell, this is a no-brainer — the student-loan industry is getting government subsidies to provide a service the government can perform for less. Obama can remove the middle-man, streamline the process, save taxpayers a lot money, and help more young people get college degrees.
The arguments from lobbyists, Republicans, and Democrats with the student-loan industry in their districts range from bad to worse. Many on the right argue that it’s “big government” — it’s better to waste taxpayer money on an inefficient system, just so as long as it meets conservative ideological standards. (“It doesn’t work in practice, but maybe it’ll work in theory.”)
The industry’s arguments are even worse. Matt Yglesias has a helpful summary:
It seems that Sallie Mae has put forth a compromise position that they say would achieve 82 percent of the cost savings of Obama’s plan. Sallie Mae’s estimates seem likely to prove unduly favorable to Sallie Mae, but even if the estimates are accurate we’re still talking about $17 billion in pure waste. The Times writes that “Lenders are also emphasizing the jobs they provide.” And, indeed, it would be remarkable if that $17 billion wasn’t employing anyone. But if you gave it to students, it could send an extra 500,000 kids to college for free each year and that would create jobs as well.
Those of you with long memories may recall that we had this debate before, in Bill Clinton’s first term. The former president wanted to do exactly what Obama’s doing now, but backed down when conservatives put up a serious fight in support of the industry. The eventual compromise led to two types of student loans — direct loans and guaranteed loans. Colleges were allowed to choose the system they preferred. (Schools preferred the direct loans until lenders started bribing college-loan administrators. It was quite a scandal.)
Here’s hoping Obama is able to finish the job Clinton started.