Salon: GOP’s newest attack on student loans

[highplainsdem]

http://www.salon.com/2012/09/01/gops_newest_attack_on_student_loans/singleton/

Since health care reform was passed in March 2010, Republicans have railed against the individual mandate and imaginary death panels. But they’ve also been seething over a lower-profile part of the package called the Student Aid and Fiscal Responsibility Act (SAFRA), which made the government the sole originator of federally backed student loans. Critics have called it a government takeover, with Paul Ryan claiming that “they had the federal government, the Department of Education, basically confiscate the private student loan industry.” (For the record, you can still go get a private student loan whenever you want. You won’t be pulled off the street and tossed into the back of an FBI van.)

If Republicans get their way, this dark age of sensible reform and efficient lending practices will soon come to an end. Their 2012 platform declares, “The federal government should not be in the business of originating student loans; however, it should serve as an insurance guarantor for the private sector as they offer loans to students.” In other words, they want taxpayers to assume all the risk and banks to enjoy all the upside. Their big idea for student loan reform is to roll back change and restore a status quo that already wasn’t working.

Most students can’t afford to pay soaring college tuition rates out of pocket, so the government has a vested interest in making higher education more accessible given that it’s a public good and the key to a more productive workforce. Even the Republican platform concedes that much by stating that the government should continue to back private lenders instead of pulling out of the student loan market entirely.

But there’s no obvious reason why this goal is best accomplished by funneling money through third-party lenders instead of issuing loans directly. Before SAFRA was passed, federally backed student loans were administered through the Federal Family Education Loan Program, or FFEL, a public-private partnership in which the federal government subsidized and guaranteed student loans that were originated by private lenders. This meant that banks received taxpayer money as an incentive to keep interest rates low. The government also guaranteed that it would pay back up to 97 percent of the loan principal if the borrowers defaulted, meaning there was little need for lenders to worry about credit risk. That proved an inefficient way to provide loans, but a great way to prop up banks and waste a bunch of money.

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