There’s a fight brewing in the Senate over student loans. The Democrats want to socialize the student loan system. The President has caved a little on this. But the House and Senate GOP are fighting back. Here are some facts:
“There are two federal student loans programs (hey, it’s the federal government…) The first program, the Federal Family Education Loan Program (FFELP), is a public-private partnership between the federal government and various lending institutions. The FFELP was established under President Lyndon Johnson’s Great Society initiative. Despite those origins, however, the FFELP has been a cost effective way for the federal government to help over 50 million students finance their college educations. The FFELP currently finances college loans for eighty percent of American college student.
“The other program–the Federal Direct Loan Program (FDLP)–is run entirely by the government and was established in 1993 under President Bill Clinton. Loans to students under the FDLP come directly out of the treasury and interest payments go directly back in. The idea behind establishing the FDLP was to “cut out the middle man” and save the taxpayers some money. However, in this regard, the FDLP has been a disaster, as Herb London recently observed in Townhall.com …
“So why does all this matter now? Well, because it’s nearing decision time in Congress. President Bush has proposed $19 billion in cuts to his 2008 education budget. And there is a movement afoot among Democrats in Washington to use those cuts to gut the FFELP. That is to say Democrats in Washington want to commence the dismantling of the student loan program which, of the two, is more efficient, services the most students, and is lightest on the taxpayers.”
From the Washington Post:
From Herb London at Townhall:
“That will not be easy. Shortly after Democrats won control of Congress last year, the Senate’s leading Democratic lawmaker on education issues, Sen. Edward M. Kennedy (D-Mass.), lambasted Sallie Mae and its industry for profiting excessively and at the expense of low-cost education. ‘The student loan program works brilliantly for the banks, but not for the students,’ he said. ‘We ought to take the money-changers out of the temple in terms of student loans.’ …
“The student lending industry became a tempting target for cutbacks for philosophical and political reasons. Democrats tend to prefer government solutions — and eschew for-profit answers — to societal concerns. Moreover, Sallie Mae and others in the industry had showered mostly Republican lawmakers with campaign contributions, increasing the partisan antipathy.”
“Congressional concern about the FDLP inefficiency led to a General Accounting Office (GAO) investigation which noted that since FDLP borrowers were allowed to defer payment of their loans until out of school, a negative cash flow would result until more borrowers begin repayment. However, the GAO could not determine when or whether positive cash flow would occur.
“Fifteen years after this study, FDLP is still losing money. It has actually paid more in interest to the Treasury than the amount of interest it has received from borrowers. By contrast, the opposite has occurred with FFELP where the rates of borrowers and payments to the lenders are connected by statute and market rates. There is little question where and under what circumstances the taxpayers’ investment is protected.”
“As an educator, I share Washington’s renewed passion for making college more affordable and accessible for everyone. However, this issue is more complex than simply shifting resources from private-sector lenders to what could evolve as a government monopoly on student-loan providers.
“One must conclude that private-sector competition leads to greater efficiency, better service and more creative solutions than a strictly government-run entity.”