Marron, one of my favorite budget wonks, has written a characteristically balanced and thoughtful take on the student loan provisions in the health legislation.
Opponents have denounced this change as a government takeover of the student loan market. That makes for a great soundbite, but overlooks one key fact: the federal government took over this part of the student loan business a long time ago.
In a private lending market, you would expect lenders to make decisions about whom to lend to and what interest rates to charge. And in return, you would expect those lenders to bear the risks of borrowers defaulting. None of that happens in the market for guaranteed student loans. Instead, the federal government establishes who can qualify for these loans, what interest rates they will pay, and what interest rates the lenders will receive. And the government guarantees the lenders against almost all default risks.
In short, the government already controls all of the most important aspects of this part of the student loan business. The legislation just takes this a step further and cuts back on the role of private firms in the origination of these loans.
I agree entirely. As Marron suggests, the revenue projections are probably overoptimistic. But it’s not obvious to me that cutting out the middleman here is such a bad idea. That said, Timothy Carney adds a useful wrinkle:
While nationalizing student loans may seem irrelevant to “reforming” health care, there is something fitting in pairing the two undertakings in one bill — it’s almost a foreshadowing. Student lenders have long fed at the federal trough, pocketing so many subsidies that Democrats were justified in asking why there needed to be a private sector in that industry at all.
This weekend, it’s the drug companies, hospitals, doctors, and insurers who are latching more firmly at Leviathan’s teat. How long before Congress decides to knock out the profit-taking middleman, and institute a single-payer system or even a national health system?
This is less a case for allowing student leaders to feed at the federal trough than it is a case against the structure of the health reform legislation, and the tight regulation of insurers that it entails.