With all of the attention paid to the health-care overhaul
plans of the Obama administration and the cap-and-trade bill coming next from
Congress, political observers can be excused if they believe that all of the
government interventions and takeovers have been addressed. However, statism rarely sleeps, and in this
case the statists have become adept at multitasking. The House has already passed a bill that will
nationalize the student loan industry, and the Senate Committee on Health,
Education, Labor, and Pensions now has it under consideration.
This bill proposes two major interventions from the federal
government. The first is rather
straightforward: it proposes to loan money directly to students and eliminate
private-sector lending. Section 201's
summary makes this quite succinct:
(Sec. 201) Prohibits any new
loans from being made or insured under the part B Federal Family Education Loan
(FFEL) program after June 2010.
Decades ago, the federal government decided to encourage
students to attend colleges and universities by subsidizing and guaranteeing
loans for tuition and other expenses.
That encouraged banks to lend to what normally would be a high-risk
constitiuency -- teenagers without jobs.
That allowed many more students to access higher education, and lenders
had little risk in the transaction - and for a while, everyone was happy.
However, that large increase in demand created pressure on
prices, too. As more students flooded
into colleges and universities, tuitions increased as supply strained to meet
the demand. The size of loans had to get
larger, which meant more risk transferred to the federal government as it
continued to encourage lenders by making the programs nearly fail-safe. The scope of lending also increased under
federal pressure and incentives, so that more loans failed and Washington spent
more on its guarantees.
If this sounds like a familiar pattern, well, it should. The same mechanisms that inflated the housing
bubble were in play in the student loan market.
When the former collapsed last year, it damaged the same financial institutions
that handled the latter. And that gave
Democrats all the opening they needed to argue that the lenders were an
unnecessary middleman all along. Instead
of using subsidies and guarantees to private lenders to encourage student
lending, HR 3221 essentially nationalizes the process.
That plan has one very large problem, as Rep. John Kline
(R-MN) explained to me in an interview this week. The private-sector lenders actually have
the money to lend. The government,
on the other hand, had to borrow $1.4 trillion in order to fund itself in
FY2009, and the deficit projection for FY2010 is another $1.4 trillion. Even if one was inclined to believe that the
government could run a loan program better than the private-sector lenders -
which, given the debacles of the TARP program, among others, is highly suspect
- the money just doesn't exist. We will
have to sell tens of billions of bonds to fund the program, essentially
borrowing money to loan it to students, and we'll probably not get the same
interest rate that we have to pay on the bonds.
Kline pointed out an even more curious clause buried in the
laughably titled Student Aid and Fiscal Responsibility Act of 2009. Section 505 authorizes the allocation of at
least $100 million dollars over the next five years, possibly as much as $730
million, depending on how Section 501 gets interpreted. Section 505 specifically does the following:
Authorizes the Secretary to
award competitive grants to, or contract with, IHEs, philanthropic
organizations, and other appropriate entities to develop, evaluate, and
disseminate freely-available high-quality online training, high school, and
postsecondary courses.
The federal government now wants to develop online training
and curricula for high schools, colleges, and universities. Even if we had the money on the federal
level, and we most certainly do not with annual deficits of $1.4 trillion, what
expertise or jurisdiction can the federal government claim in this regard? The US has been blessed with fine private and
public institutions of higher learning, many of which already offer
online coursework. Some offer full
degree programs through their online annexes.
Consumers - students - can select from a wide range of such
programs. For high school, those efforts
should be left to the local communities and the states to determine which
programs work best, but even there a multitude of choices in both public and
private sectors already exist.
Why does a bankrupt government need to spend hundreds of
millions of dollars to duplicate what already exists in the private
sector? Perhaps the same reason they
needed to seize the student-lending process.
Congress and this administration want to control the flow of funds to
schools and the choices made by students and administrators alike. Just as with the more massive interventions
in energy and health care, the motive is power.
This is the reason that the founders, in their wisdom, limited
Congressional and executive jurisdiction in the Constitution.
The health-care and cap-and-trade debates deserve our close
attention, but let's not let this one slip through our fingers.
Edward Morrissey's Bio
Ed Morrissey writes for Hot Air, where he also has a daily political talk show. Ed has written for the Washington Post, the New York Post, the New York Sun, and has made numerous television and radio appearances. He lives in Minnesota with his wife, son, and two granddaughters.
Posted
10-22-2009 12:01 AM
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