Another reform plan in peril

ANOTHER REFORM PLAN IN PERIL…. We’ve talked a bit about the Student Aid and Fiscal Responsibility Act (SAFRA) before. I continue to think this should be an easy call. The student-loan industry is getting government subsidies to provide a service the government can perform for less. The Obama administration has asked Congress to remove the middleman, streamline the process, save taxpayers a lot money, and help more young people get college degrees.

The House already approved the plan. But now, thanks to the misplaced judgment of Massachusetts voters, and an intense campaign from a whole lot of industry lobbyists, this reform proposal finds itself in trouble, too.

Four months ago, it appeared all but certain that the White House and Democrats in Congress would succeed in overhauling the student loan business and ending government subsidies to private lenders.

President Obama called the idea a “no-brainer” last fall, predicting it would take billions of dollars from the profits of private lenders and give it directly to students, and many colleges were already moving to get loans directly from the federal government in anticipation of the next move by Congress.

But an aggressive lobbying campaign by the nation’s biggest student lenders has now put one of the White House’s signature plans in peril, with lenders using sit-downs with lawmakers, town-hall-style meetings and petition drives to plead their case and stay in business.

This need not be complicated. In fact, Gail Collins had a good column on the Democratic proposal not too long ago.

It would simplify the federally guaranteed loan system, save an estimated $87 billion over 10 years and use that money to increase aid to low-income students, improve community colleges and raise standards for early childhood education.

Let us stop here and recall how the current loan system works:

1) Federal government provides private banks with capital.

2) Federal government pays private banks a subsidy to lend that capital to students.

3) Federal government guarantees said loans so the banks don’t have any risk.

And now, the proposed reform:

1) The federal government makes the loans.

The Republicans’ opposition on this is just embarrassing. The same folks who demand cost savings, improved efficiency, and streamlined government programs, are nevertheless opposed to a common-sense idea that achieves those very goals. Some of the Republicans are no doubt swayed by industry campaign contributions, some just reflexively oppose everything Obama administration supports, and some would rather have an inefficient private system than a superior public system for purely ideological reasons.

But thanks to Massachusetts and GOP obstructionism, common sense may very well lose.