Why in the world should we spend billions and billions of dollars subsidizing private loans when the government can make those loans more effectively? Not only that, the government is already making those loans to millions of students. I would love to hear somebody explain to me the fiscal sense of paying private companies billions of dollars to make loans with the exact same terms as the government’s Direct Loans.
In fact, the Congressional Budget Office estimated that ending subsidies for private lenders would save over $80 billion over ten years, even after reducing interest rates for students. Is anybody really going to tell me that we should not be doing this?
That brings us to Lamar Alexander, R-TN, and this ridiculous op-ed:
Here is what they haven’t told us: The Education Department will borrow money at 2.8 percent from the Treasury, lend it to you at 6.8 percent and spend the difference on new programs. So you’ll work longer to pay off your student loan to help pay for someone else’s education — and to help your U.S. representative’s reelection.
Ummm… yeah, that’s how loans work. That’s how loans have always worked. And 6.8 percent is the current interest rate charged on all student loans, and has been for a few years now. Incidentally, it’s also the rate charged by private lenders — but we’re paying them over $80 billion to get them to charge that rate.
Maybe Alexander is arguing that we should be lending that money at 2.8 percent, giving students the loans at cost. I think that’s a great idea, but good luck finding a private lender that would be interested. I sincerely doubt that’s what Alexander is advocating. In fact, he’s not really advocating anything — he’s just trying to make people mad.
And there are some other things the government should tell you: The estimated $87 billion in savings isn’t real. According to a July 2009 letter from the Congressional Budget Office (CBO) to Sen. Judd Gregg (R-N.H.), the savings are closer to $47 billion including administrative costs, if we use the same “scoring” (i.e., cost analysis) method that Congress required the CBO to use when it scored the Troubled Asset Relief Program last year because the method would more accurately calculate the cost to taxpayers.
Oh no! If you use a totally different method of scoring, we would save “only” $47 billion! That would be terrible!
Finally, the government should disclose that getting your student loan will become about as enjoyable as going to the Department of Motor Vehicles.
I don’t even know where to start with this one. First of all, getting my Federal loans was just about the easiest thing I’ve ever done. I filled out the FAFSA, was told what my maximum loan size could be, and told them how much I wanted. The end. Second of all, even if Alexander were right, is that what we’re paying private lenders $80 billion for? To make the student lending experience “enjoyable”? I don’t think many people with private loans that keep getting sold to different servicers find that “enjoyable.”
Is there something I’m missing? If anyone has a reasonable argument about why we should continue paying private banks billions to make these loans, please explain.
[via The Wonk Room]
Republicans are fiscally irresponsible. They will put their ideology over common sense even when they admit it costs u 47 billion. Seems like a common sense, easy fix. what’s standing in the way?
Jeff and Alec:
This is the same government that couldn’t operate cash for clunkers. Dealers went through mounds of paperwork and didn’t get checks for weeks.
Just curious this is the same government whose Social Security program is broke. The Democrats by the way blocked reform which gave people greater control of their own social security money. You want the same government which said we have to take money to plan a retirement fund for you. A plan which might cause you to retire later. A plan which could cause a person who even if they save conservatively will have more guarentee income and cash in the bank.
And Jeff can you on this blog give a 100% guarentee that this day and every day in the future that the government won’t tell a future possible student loan person that if you don’t do certain behaviors you don’t get your loan money. Keep in mind a lot of federal spending programs already have that type of twist.
Walter Hanson
Minneapolis, MN
This is the same government which couldn’t run cash for clunkers.
In case anybody feels it’s neccesary to interact with this bad actor, here is EVEN MORE evidence that Walter Hanson is full of shit.
http://detnews.com/article/20100309/AUTO01/3090407/1148/auto01/Study — -Cash-for-clunkers — had-stronger-influence-than-estimated
Lojasmo I guess you’re the person who is full of shit.
What cash for clunkers did was:
One, cause a spike of sales. Sales fell to the rate that was taking place before the program.
Two, what the article didn’t mention was the interest costs.
Every year we the United States of America will pay $40 million
dollars a year in interest if you assume a 1% interest rate.
If you assume 5% that will be $200 million a year.
Put you’re too busy saying I’m full of shit to see that damage.
Walter Hanson
Minneapolis, MN
Nice - let’s go point by point.
1) The government currently operates Direct Loans through the DOEd. I have loans from two different schools through Direct Loans, and had one through a private lender (FFEL). The Direct Loan process was seamless and far, far, easier than the FFEL process. They already do this program for a significant portion of the student loans generated.
2) If this program wasn’t profitable to operate, the banks who receive the windfall would be HAPPY to let the government do it. In fact, banks get the ultimate sweetheart deal with FFEL, they get GUARANTEED income and the downside risk of default is PAID FOR BY THE GOVERNMENT. The notion that this program will “go broke” is silly.
3) The government ALREADY prescribes certain behaviors, and I seem to recall that these have almost always been at the behest of the right wing in this country. The best example is that if you have a drug-related conviction, you are ineligible for ALL loans, FFEL or Direct Loans. AND the “gubmint” can do MORE than this regardless of whether banks act as a pass-through for the money or if we use Direct Loans.
These are bad arguments.
Social Security has never missed a paycheck
Medicare satisfaction rates have been higher than the private sector for 10 straight years.
VA medical center satisfaction rates are 10% higher than the private sector.
Cash for clunkers was one of the most successful short term stimulus programs of all time.
When it comes to caring for human needs on a large scale, the government wins every time. It’s not efficient to help the most needy, but it helps our society. Capitalism works on efficiency. That’s why the private sector can’t run health insurance because the most efficient way to make money is to deny care to sick people. It costs too much to help them.
Alec:
Cash for clunkers was not a success. Dealers were so fed up they stopped offering deals. Part of what caused the dealers to cooperate with cash for clunkers was the belief that if they entered all the data right for their sales on Saturday the government will get them their check in a matter of days. You must have missed that part that some dealers were waiting weeks for their checks. There was one dealership that was owed over a million dollars.
If Medicare satisifcation rates are so satisfying why do they reject more procedures than private health care insurance companies.
Oh so only the government cares. Churchs of all types was sending people to places like Hati. And they do this thing call missonary work where God forbid they did for the good. Not the money that the government will pay for them.
As for Social Security not missing a paycheck they have! Let me tell you a story. There was this great woman. She was a mom to three children. She was for a long time a stay at home mom and even helped one of her kids who some people thought was learning disabled. Towards her later years she took a job and became the families primary earner as her husband went through health problems. She got to the age of 65 and decided to retire. She ran off to a trip with some relatives where she unexpectedly died in her sleep before she ever got a Social Security. So even though she earned something like $30,000 in her life my MOTHER only got a check for $255 for her life time Social Security earnings.
So when you talk about government programs being great you’re lying! I’ve seen the reality.
And if for example the government pays a maximum social security check to a person it has been estimated by experts a person will have to live under current rules maybe twenty years.
The problem you have Alec is that you and Jeff think that government can do no wrong. The things that they do wrong you pretend that they did nothing wrong.
The point of Jeff’s post was that government should offer student loans and no one else. And Jeff thought no one can disprove his case.
You can’t prove Jeff’s case. You only reinforced why the government should have less control of our lifes.
Walter Hanson
Minneapolis, MN
Where is anyone saying that “government should offer student loans and no one else?” The point of the post was the student loans that are government loans, but offered through the middlemen of banks (you kow — those exemplars of private sector efficiency and wisdom that had to be bailed out). No one is saying that private lenders can’t offer student loans with their own money.
Randy the post read why pay private lenders to do what the government can do. That means that the government should borrow the money and lenders take a hike.
How does such a simple concept go over your head?
Walter Hanson
Minneapolis, MN
Walter, I think you meant “the government should lend the money . . .”
One of the many other things that appear to have gone over your head is the entire point of the post. Now, private lenders are just issuing and servicing loans. The money for those loans comes from — wait for it — the government! The feds are letting banks reap handsome profits for lending out money that isn’t even theirs.
If the feds cut out the middle man, private lenders still could make student loans. They would just be doing it with their own funds, and at their own risk (Ha! To that last point).
Walter Hanson,
If you would actually ask any New Car Dealer in the Twin Cities if Cash for Clunkers was a good program the answer would be a resounding yes.
Every dealer got all the money they were supposed to. Did they complain about the paperwork, sure, but they got their money. Much of the paperwork was designed to prevent Denny Hecker wannabees from scamming the system. The success of C for C overwhelmed the system and it took some time for all the paperwork to be processed and verified. And it was so successful that it ran out of money well before it was thought it would and had to be re-funded.
Before you brand something a failure perhaps you actually know what the hell you’re talking about. I work with Auto Dealers every day, most are Republicans, but they have all told me C for C was a great success. Ask the Minnesota Auto Dealers Association what they thought of Cash for Clunkers. Go down to the Auto Show and talk to any salesman there, you will come away with different opinion of Cash for Clunkers.
But Rick, these facts would interfere with Walter’s own version of reality.
Rick:
There were dealers talking about how this hurt them immediately. Yes dealers got their money, but weeks later. In the meantime they had to front it for the government.
In the meantime you’re overlooking two points which your claim of a success seems to overlook.
One, it caused the spike which you hailed, but sales immediately fell after the program ended.
And two, even if you assume that interest rates stay at 1% forever (which it won’t) we will spend $40 million dollars a year to finance it. If you assume interest rates climb to 5% that makes it $200 million dollars. At that rate in just twenty years we would’ve paid in interest the program. God forbid if interest rates jump more than that.
Walter Hanson
Minneapolis, MN
Cash for clunkers is an example of a bad use of government money. A bad program. A bad way to spend taxpayer dollars.
It sent a few bad messages:
1. That a good use of our hard-earned taxpayer dollars is to buy peoples’ cars and then crush them
2. That citizens of the US, whose financial over-extension helped cause a recession, should be incentivized to go and buy new cars instead of driving their old beat, the responsible choice
3. That taking out new car loans — financing a depreciating asset — is a good way to get out of a recession
4. That driving new cars are a high priority for our country
I can’t think of a worse program. UAW loved it. Car dealers loved it. But you and I paid for it all and it was a laughable waste of money.
As the recipient of both Direct Loans and private student loans, I can say without a doubt that private loans are inferior. My overall experience with Direct Loans has been excellent, which I can’t say for my private lender.
You had a choice. Years ago a burger company tried to make fun of a communist style government by having a model display a wide variety of fashions for women. The model though kept walking down the runaway wearing the same ugly dress. Take away the private lenders you don’t have that choice anymore.
Oh that’s what people want to do with health care to us.
Walter Hanson
Minneapolis, MN
Oh that’s what people want to do with health care to us.
Communists want our health care system to make us wear ugly dresses while feeding us burgers?
Oh that’s what people want to do with health care to us.
Communists want our health care system to make us wear ugly dresses while feeding us burgers?
It sounds no more insane than any other Republican health care plan.
Randy:
The Republicans include selling accross state lines with no mandates. Only a person who wants government control of our lifes will oppose that.
The Republicans have real tort reform. In the area of medical costs it will dramatically reduce unnecessary tests and doctors will actually be able to practice medicine.
The insane plan is what the Democrats are supporting and you endorse.
Walter Hanson
Minneapolis, MN
1. Selling across state lines is asham at best, a recipe for fraud at worst. Most of the bigger companies already sell insurance almost everywhere in the country (the exception is Kaiser Permanente, which limits is geographic scope by choice, not because they’re too shy to ask permission). The market would be opened up to only the lowest rung of the industry — the companies that provide nexct to no coverage. No “government control of our lives” also means that there is no effective oversight of a very important consumer transaction. Or are you one of the geniuses who answers those internet ads for “complete coverage for $49 per month”?
2. Tort reform will not lower medical costs by any sgnificant amount (less tha 3%, if my reollection of the CBO study done the last time Republicans made such a proposal is correct).
Also: what Aaron said about federalism (next post).
That was my reply to Walter. I’m on a differnt computer today.
Walter:
Please explain how Republicans can advocate using “states rights” / 10th amendment as an argument against health care reform, yet their primary alternative is to eliminate state regulation of health insurance and nationalize the market. It’s an obvious contradiction.
Even states with “tort reform” e.g. Texas have high health care costs, so how is this going to solve the problem of astronomical premium increases again?