Education Policy Program Links
Topics
- Accreditation
- Admissions
- Athletics
- Auctions
- Bankruptcy
- College Costs
- Congress
- Credit Crunch
- Department of Education
- Direct Lending
- Endowments
- For-Profit Colleges
- Guaranty Agencies
- Guest Post
- Institutional Aid
- Mailbag
- NASFAA
- Non-Profit Lenders
- Private Loans
- Sallie Mae
- Student Aid
- Student Loan Scandals
- Tax Breaks
- Veterans
- Weekly Roundup
User login
Can You Nationalize a Government Program?
Student loan industry officials are always good at providing the spin. Their latest gambit: accusing White House of trying to "nationalize" the federal student loan programs by proposing to provide federal student loans entirely through Direct Lending.
We have news for the lenders: it is impossible to nationalize a government program. By definition, the FFEL program is already a nationalized program because it is a government program, just like Direct Lending.
Truthfully, both FFEL and Direct Lending are very much alike. They each have the same goal of ensuring that everyone who wants to go to college has access to loans with favorable terms. In both programs, the federal government sets all of the terms of the loans in law and guarantees them against default and interest rate risk. Both programs use private companies -- often the same private companies -- to service and collect on these loans.
The only real differences between the two programs are the entities that originate the loans -- in the FFEL program, banks and other private lenders, and in Direct Lending, the U.S. Department of Education -- and the subsidies it provides these companies and other players (like student loan guaranty agencies) to carry out these services.
The loan industry's arguments about nationalization are particularly ironic now. As we said last week, credit market disruptions have made the FFEL program untenable. Only an emergency law -- the Ensuring Continued Access to Student Loans Act (ECASLA) -- saved the system by allowing the Education Department to buy FFEL loans and lender federal money to lenders. In other words, the bank-based program's survival depends almost entirely on the federal government providing federal capital to lenders to make new loans. Sounds a lot like Direct Lending to us.
Sorry, lenders, it's a little late to complain about nationalization. Lyndon Johnson settled that fight a long time ago.
NAF revisionist history
NAF is really on its game folks! LBJ sure did settle the "fight" a long time ago just like NAF says--and guess what, he chose the FFEL Program! The Direct Loan Program wasn't signed into law until 1993 by Bill Clinton--FFEL preceded the Direct Loan Program by 28 years (LBJ signed FFEL into being in 1965)! Now why didn't LBJ go as far as Bill Clinton would have liked to, and our current President intends to, and just lend directly from government coffers to students with no FFEL? What's the answer NAF? Is it possible that Great-Society LBJ understood the limitations of government placed on it by the supreme law of the land? Could it be that any lending on a large-scale in this country is, and should be, a private-sector activity? And therefore, as such, it is beyond the control of D.C. except through regulatory regimes like the FFEL Program?
Thomas Jefferson said, "A wise and frugal government which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned--this is the sum of good government." Which student-loan program do you think is more consistent with this statement from a key member of our founding generation? (The answer is obvious.)
Are you kidding me?
This has to be one of the most disingenuous postings of all time. I think Patrick Bott's smack-down pretty much tells the real story.
But one additional point to make - the two programs ARE NOT very much alike.
Ask borrowers trying to speak with customer service reps. if they are alike. They are not. Customer service (for borrowers and schools) in the FFEL is far superior.
Ask borrowers in repayment if the programs are alike. They are not. Historically FFEL borrowers have paid lower interest rates than DL borrowers. That is, up until October 2007 when Congress "Reduced the Costs of College" by effectively increasing FFEL borrowers' rates.
In 10 years, ask any American if the two programs are alike. They are not. With 100% DL, the national debt will increase by $1 trillion. That level of debt will effect us all through higher interest rates on credit cards, mortgages, and, yes, student loans.
It is a shame ideologues are using the very real economic crisis effecting this country as 'cover' to nationalize student lending.
logic will never prevail
somewhere someone made the point that FDLP and FFELP both need to be scrapped, and a new program created to rise from the ashes. not likely but that is the most sound advice I have heard.
consolidated my wife's graduate loan into FDLP last spring. took approximately 9 weeks start to finish. didn't really matter to me but if that is the track record on front-end originations, schools will be in trouble.
one upside to going 100% FDLP: Stafford loan repayment will be voluntary again like the 70's and 80's GSL ones were... :-)
Post new comment