The Wall Street Journal reports that all for-profit lenders
who currently account for 80% of the government-backed loans made each year, would be cut out of the market for originating loans ...Today about 75 percent of loans are federally subsidized, risk-free loans carried about private lenders through the Federal Family Education Loan Program. You will not find a single person in the world who believes that direct lending -- from the government to the student -- is significantly cheaper than the FFEL program. Tens of billions of dollars will be cut from useless middleman processing and used instead to fund college educations for low-income students. A shot at upward mobility grows from the ashes of superfluous banking.
The Obama administration would use anticipated savings from the measure to increase grants for low-income students, boost funding for minority student groups, provide money for school construction with a small portion left over to pay down the deficit.
But how will the bill fare in the Senate? Eliza Krigman of National Journal says the Democrats will try to use reconciliation -- a budget procedure that allows some bills to be passed with a simple 51 vote majority rather than find 60 votes to break a filibuster. That makes its passage seem more likely, but banks will unquestionably exert pressure on key Democrats -- like Ben Nelson of Nebraska, whose state is home to a major student lender -- to fight the bill.
This is great for students as the excess fees and interest payments will not going to "middlemen". Fannie Mae affectively does this anyway, yet outsources to private companies.
If there were a mechanism in place to allow current debt holders to refinance into the program, it would be better.
But why wouldn't this get 60+ votes in the Senate? Who's against funding education?
Zero-risk? Hah. Not according tothe CBO, as we see below.
No one should believe the $87 B number. That's only true if you ignore certain costs, as the CBO says. From another CBO letter:
So first off, it goes from $87 billion to $80 billion after counting administrative costs. Next, it doesn't consider any risk of default:
You only get the $87 B through accounting that assumes that there's no chance of students defaulting. Under the previous system, the banks suffered the risk of defaults. Now the government would.
Yes, it is just like Freddie Mac and Fannie Mae. The government should pretend that students, just like subprime borrowers, never default. Go on, ignore what the models say.
Under the previous system, the banks suffered the risk of defaults. Now the government would.
That's not accurate. I don't think you fully understand how this whole government backed loan thing works. It doesn't matter how many students default because every student who defaults cost the government the same amount no matter who they have their loans with. Be they private or government loans the government ASSUMES THE RISKS OF DEFAULTS. That's what makes them NO RISK loans for the banks. If the student doesn't pay it back the governemnt will pay the bank back instead. Its a win win for the bank and a lose lose for the gov. There is a possibility that these new loans will have a higher default rate. However that will just cut into the savings. It won't ever end up costing the government more then it currently does. That is what makes this legislation a no brainer.
I didn't say it would cost the government more than it currently does. Did you read what I quoted? I said that the $87 billion number is inaccurate, according to the CBO. It's toting up only one side of the ledger. $47 billion is more accurate according to the CBO.
Part of the banks' profit is accounting for the risks of default, and part of it is administrative cost. Not accounting for that is pretty dishonest. You're an honest guy, so please stop using that $87 B number.
We're spending too much on college education, which is why the price of it is rising so much faster than inflation. All you are doing is sticking these kids with a lot of debt.
The most interesting stuff I've read recently on education is a new wave of online course material. Now that the internet can handle video, it's all getting a lot more accessible.
That's the only hope I see of actually improving the productivity of colleges and making education affordable. Running up a huge debt is not the answer.
Am I missing something, or are people actually trying to use the fact that it might only save $47 billion as a criticism of this measure? Maybe it's being slightly oversold, but that seems like missing the forest for the trees.
"Tens of billions of dollars will be cut from useless middleman processing"
Note that the Education Department has outsourced the servicing of its direct loans to Nelnet and Sallie Mae, who were among the largest of private lenders.
Three corporate jets. Three mansions, one with a private 18 hole golf course. Corruption. Greed. Financial Aid directors fired from U. of Texas, USC, Johns Hopkins, Columbia and others for taking kickbacks.
That is what the middleman laiden, corrupt ffelp system has provided.
Sallie Mae has three corporate jets. Albert Lord, the CEO has three mansions with one estate sporting a private, 18-hole golf course. One of Mr. Lord's mansions is in Florida (a strong indication of his IQ)
These middlemen are self-dealing, glad-handing, useless skimmers in the education system of America.
They aren't needed. Good riddens. I had my loans with SLM and switched to the Direct Program before McKeon and Boehner were paid to eliminate that option. The Direct program provides equal or superior service - execpt in the area of lost password retrieval for their online accounts - that's a pain - but a minor pain to funding useless middlemen.
Colour me ignorant but this says nothing of true private loans, often made to students whose parents make "too much" $$ (a utterly ridiculous judgement, imho, but I digress).
The whole concept of "need based" funding needs to be seriously examined; In our current system some students are punished because of their parents' relative financial success, where its basically assumed by the Gov't that students' parents will foot the bill as long as they make X amount of money (a threshold that is not very high). This is unfair to the parents, but more unfair to the student who has to take out expensive private loans when his parents CAN'T, in actuality, fund all of his/her college, especially at many top schools where such students are often found.
I don't have the figures, but I'm curious to see the # of students who attend a 4-year college who might otherwise chose to forgo the experience were it not for the availability of plentiful and relatively cheap government funding. Are we not further embracing debt just because it is there? Would some of these students not be better served, ceteris paribus, entering a trade or doing something else with their lives?