The Voice’s recent endorsement of the Student Aid and Fiscal Responsibility Act (“Senate must pass Student Aid Bill” 23 Sept 2009) is a timely example of how the public is being bribed with its own money into supporting an agenda by smooth-talking politicians who are bankrupting our country, undermining our free market, and carving a greater role for themselves in our daily lives. As the federal government is poised to take over yet another private industry and add billions more dollars to our federal debt, we must remember what the past several months of middle-of-the-night legislative recklessness has taught us: we can’t get something for nothing.
Since the beginning of the Obama Administration, we have heard grand promises of economic recovery, energy independence, increased access to healthcare, and, now, more affordable higher education. There is a trend evident throughout: call it historic, spend lots of money quickly, and blame it on George Bush later. The current education bill is no different. Rather than actually helping students pay for college, it is more focused on expanding entitlements.
Under the current proposal, the government will end the Federal Family Education Loan Program and finance all student loans through the Direct Loan Program. In 2008, three out of four students chose the FFELP, but our Congress now wants to do away with that choice. That means some 19 million students will be in line at the Department of Education next year asking the same government that masterfully administered Clash for Clunkers to now be the primary administrator of student loans valued last year at $86 billion.
While this transition of the student loan program will yield substantial savings for the government by ending federal subsidies otherwise provided through FFELP, Congress did what it does best: it found a way to spend immediately all of the savings and then some, on expanding or creating spending programs. The Congressional Budget Office originally stated that savings from the bill would total $87 billion over the next ten years, but recently indicated that the number would be closer to $47 billion using more accurate risk-adjusted rates.
If you subtract those savings from the bill’s $80 billion worth of new outlays and a likely $13.5 billion increase of accompanying discretionary spending over the next decade, you are left with a net deficit. Who is going to pay for this? Students, of course—and not just in the future when it comes times to pay down the national debt, but rather as soon as we start repaying our loans to Uncle Sam, who is making a pretty penny on this deal.
Despite the government’s ability to borrow money more cheaply than private lenders at a quarter of a percentage point, it will loan the money at virtually the same rate as before (about 6.8 percent). The government will be turning a profit and then spending that money, along with more that we do not have, on new education programs. In essence, students will be subsidizing their own benefits.
While the bill contains some welcomed provisions—such as a more streamlined federal aid application and increases to Pell Grants that will be tied to inflation—it cannot be justified on these grounds alone. We must not contribute to an already astronomical national debt and cede more of our economy to the federal government. Every day I see students making hard choices about how to spend their money so they can keep within their budget. We should hold our government to the same standards, and not support its irresponsible, perhaps immoral, use of the federal credit card to further its own political agenda among narrow constituencies.
What sounds like a good deal at the surface is just more of the same from an Administration and Congress that are all too eager to find ways to save us money as long as they find ways to spend it again, plus some. It is easy to join the crowd and cheerlead for the President’s agenda, but students, including those on the Voice Editorial Board, owe it to our own posterity to consider these proposals more carefully. We certainly need to find a way to make college more affordable and put more students on a path toward higher education, but the Student Aid and Fiscal Responsibility Act is not the answer.
Let’s first debunk a few complete inaccuracies on Mr. Troiano’s rant. “In 2008, three out of four students chose the FFELP” – really . . . the students choose? In 2007 – Financial Aid Officers at Johns Hopkins, Columbia, USC, Unv. of Texas, Emerson, and others all lost their jobs when it was revealed they took payoffs from lenders who “coincidently” appeared on their preferred lender lists.
By 2008, Congress required that Universities offer at least three lenders on their preferred lender lists. At that point of requirement, hundreds of Universities were under investigation for more than 90% of their loans going to one single provider.
Let’s get past that fly-over state mentality of socialism. This is a government program – always was, always has been. The FFELP providers are mere middlemen – middlement skimming from the education financing in America.
While everyone was all indignant over GM, Ford, and Chrysler coming to washington hat in hand in their corporate jets – Sallie Mae has owned three corporate jets and flys around with no public indignation – all from a company completely founded around taxpayer subsidies.
Sallie Mae takes no risks – they merely sit in the middle of a transaction adding no value. The government guarantees the loans, subsidizes the interest rates, in some cases funds the loans, and many cases buys the loans once initiated. Where were you protesting that “socialism?”
As a reward for doing the nothing, the CEO of Sallie Mae owns three mansions – one with a private 18 hole golf course. And the Financial Aid Administrators – let’s just point out that a couple months ago, the President of their national organization, the NASFAA, resigned in disgrace as he was indicted for 8 felonies related to diverting of funds while he was Chancellor at City College of San Francisco.
As far as savings – the Bush Administration number for savings was $87 billion. The initial CBO estimates under Obama concurred with that number. The lower number around $45 billion takes into account that the FFELP folded into the direct program would require outlays to fund some outsourcing as the Dept. of Ed doesn’t have the infrastructure.
You editorial could have some merit – if only it had some facts. Sorry to be the bearer of bad news – but undergrad is for learning now, isn’t it?
I completely agree – the Private Sector promotes competition and efficiency. Creating a Government monopoly over student loans hurts students and eliminates jobs.
Those 6.8% unsubsidized loans really tell the whole story. Every elected official who supports this measure points out the Pell increases and quickly adds “and it will keep interest rates low”. Interest rates were exactly the same under both plans and they are not going to decrease. And since the Pell grant application is the same application for federal student loans, onecould even say that the increase in Pell grants is the carrot that will get even more students to take out these loans.
I am an Associate Director in Financial Aid at the State University of New York.
Two years ago I would have been a strong proponent of the Bank Loans. There were positive incentives and better customer service at the Banks. They kept their loans for the most part and did not sell them. It offered better service overall for students.
The economic issues we have all faced have hit the banks very hard. The tipping points that made me for choosing the banks are no longer there! Banks sell their loans, customer service units specializing in student loans have been dismantled, service contacts for banks for schools have been terminated, there are no incentives, etc.
The real points that tipped a decision towards a bank loan rather then a Direct Loan are no longer there.
We started Direct Loans in 2009-10 as a choice for students. We also looked at the reality of where this is heading and wanted to be probative if we had to move to Direct lending. Well Direct Lending has working relatively smoothly. A few minor issues here and there.
I would rather not close the door on banks. But given the economic reality we are looking at the Direct Loan Program is not a negative choice. The customer service is vastly improved over the years and the administration of the program from a financial aid perspective is not onerous.
* If the savings are real in what can happen I might reluctantly support moving 100% to Direct Loans. I have seen very little negative impact from our moving to using Direct Loans.
Let me get this straight…I am suppose to reinvest my future into private lending that was one of the major casues of this ecnomoic turmoil that we are in. The lenders had their chance, and they blew it. Greedy salesman and managers overlooked the consequences of their actions to earn a quick buck. I would rather my government make the qucik buck than any private company with large payments to their board members. This beleif that every aspect of our american life has to be capitalistic is ridiculus. We are just getting in our own way. Maybe, in the future, when lenders can show more responsibility and operate without goverment funding, they can have a piece of the pie back. but, until then, I am more than willing to give the government a shot at running things. Sometimes people should do some more research from multiple sources before writing such ridiculus garbage. This article almost seems like it was sponsored by private lenders to overwhelm the public with inaccurate information and scare tactics about the governemnt becoming to socialistic. We change our leaders in our country becasue we actually want change, and then when change happens we are so afraid of it?