Cutting Off The Middleman

We're going to get student loan reform this year. It's basically a done deal. And as such it's not getting a lot of credit. But it's a significant, smart reform.

Right now, middlemen get subsidies from the Feds to lend to students, taking their cut from both the Feds and students in the process. There is no reason the government cannot lend directly to students, the PURPOSE of the student loan program, making the system more efficient and cutting down significantly on costs. The only people against this have personal stakes with student loan middlemen in their communities. But we should create jobs that create things rather than suck off profits from processes they don't need to be involved in. Yesterday a bill cleared a House committee that would end the unnecessary payments in the student loan market.

A bill that cleared a House committee Tuesday would largely remove private lenders from the federal student loan industry, generating an estimated $87 billion savings over 10 years to fund more government grants and loans.

The Student Aid and Fiscal Responsibility Act of 2009 would eliminate an entire category of student loans issued by private lenders and subsidized by the federal government, vastly expanding direct lending by the government starting next July. Democrats would use the savings to fund a $40 billion increase in federal Pell Grant scholarships over 10 years, $10 billion in community college upgrades and $8 billion in pre-kindergarten changes, among other uses.

Republicans opposed to the legislation say it amounts to a federal takeover of student lending.

Yes, indeed it is a federal takeover. One that would save $87 billion dollars.

We have several problems with the conservative takeover of the rhetorical side of government. One is that taxes are verboten. Another is that private industry always works better and cheaper than the federal government. That's not true, especially in this case, where the government pays lenders to do the lending they could do directly just to maintain the illusion of the private market.

Why I say that this will pass is that there's a budget reconciliation option on it. And unlike with a complicated health care reform bill, this is completely straightforward and falls entirely under the deficit reduction standards of the budget. So we'll get this, and it will be a step forward for America.