JUDD GREGG NEEDS A HISTORY LESSON…. The Obama administration’s proposed reforms of the student-loan system are a no-brainer — they streamline the process, save money, and help more people go to college. Sen. Judd Gregg (R-N.H.), however, remains staunchly opposed, on purely ideological grounds. (via Tim Fernholz)
The Democrats, he says, pulled the same public-private switcheroo before with student loans for college. Back in the late 1990s, “there was a huge debate in the committee . . . between myself and [Senator Ted] Kennedy over a private plan versus a public plan.” In the end, they compromised — the government would offer loans directly to students, but that program would have to compete with private-sector lenders. “And the agreement was very formal, and the record shows this very clearly. We agreed to level the playing field, put both plans on the playing field at an equal status and see who won. Well, private plans won. Big time.”
Given the choice, most borrowers went to the private sector for their loans.
I know a lot of political reporters tend to think of Gregg as one of the more serious Republican lawmakers when it comes to reality, but the guy simply doesn’t know what he’s talking about.
When Clinton compromised in the ’90s and created a level playing field, colleges were allowed to choose between direct loans and guaranteed loans. Private plans lost, big time, for quite a while. Eventually, however, the tide turned, and colleges shifted away from the public plan.
Was it because the private sector was superior? No, it was because the private sector was bribing college-loan administrators.
[I]t now turns out that the private lenders’ success came not through superior efficiency but through superior graft. The emerging college-loan kickback scandal is a vast scheme by private lenders to bribe colleges into foisting their services onto students. Lenders plied college-loan officers with meals, cruises, and other gifts. Some loan officers were given lucrative stock offers. Columbia’s director of undergraduate financial aid purchased stock in Student Loan Xpress — which became one of that school’s preferred lenders — for $1 per share and sold it two years later for $10 per share. Some lenders offered millions to the universities themselves to drop out of the direct-lending program.
So this whole scandal could have been avoided if Bill Clinton had just gotten his way…. Indeed, the very thing that drove conservatives to oppose Clinton’s reform — the vast private profits made available by guaranteed loans — is what enabled the scandal.
We’re quickly reaching the point at which we should effectively assume the opposite of whatever Gregg is saying is true.
