18-02-2005 09:45									#1
	Privatization, "Big Government," and Student Loans: A Cautionary Tale Remove this text

Feel free to keep the current debate about Social Security in mind while reading...

quote: Student Loan Math Thursday, February 17, 2005; Page A24 WHEN A BUDGET is published, its contents invariably launch big public policy debates about taxes and spending. Last week's budget also touched off a minor storm among a much smaller audience: those who study, regulate and disburse student loans. For in just a few paragraphs -- on Page 371 of the budget, to be exact -- the Office of Management and Budget unexpectedly provided its definitive answer to a long-standing argument over whether government-guaranteed student loans, provided through subsidized private lending institutions, cost more or less than direct loans provided by the Education Department. According to the budget calculators, the answer is clear: The government-guaranteed loans are more than 10 times as expensive. More precisely, the budget numbers show that for every $100 spent on student loans, the U.S. government pays $12.09 of subsidy on government-guaranteed loans and only 84 cents for direct loans. Not surprisingly, the student loan industry disputes these figures. Last week a new group called the Partnership to Protect Affordable Student Loans circulated a letter on Capitol Hill claiming that despite the budget figures, the direct loan program costs taxpayers "$1.4 billion more" than the guaranteed loans. But the group -- which is run by Mercury Public Affairs, a company that among other things does public relations for Sallie Mae, the largest student lending institution -- has obtained its figure by comparing dissimilar numbers. Sallie Mae itself provides more complex arguments about the two programs' relative costs, but its analysts cannot definitively disprove the assessments of OMB or of the Congressional Budget Office, which has come to a similar conclusion. Nevertheless, the complexity of the numbers -- reinforced by the enormous amount of money the industry spends on lobbying -- has left many in Congress feeling that there may well be "hidden costs" to the direct loan program. With this in mind, the House and Senate budget and education committees recently asked the Government Accountability Office to examine the question of costs once again. That's fine -- as long as they take the results seriously. Billions of dollars are at stake if the critics of subsidized lending are right, and could be easily redirected. At the moment, universities can choose which kind of loan to use, but they have no real incentive to use direct loans. By contrast, financial institutions lobby heavily to persuade universities to use their services. As a result, only 25 percent of universities opt for direct loans. If that number were to shift even slightly, to 40 percent, $12 billion would be saved over 10 years, according to the CBO. That could provide upward of $1,000 more apiece in Pell Grants to low-income students. By way of comparison, President Bush announced this year with great fanfare a $100 annual increase in Pell Grants. Knowing these numbers, education committee Democrats and a few maverick Republicans -- George Miller (D-Calif.) and Thomas E. Petri (R-Wis.) in the House and Edward M. Kennedy (D-Mass.) in the Senate are among them -- have proposed legislation that would give universities an incentive to switch programs, by allowing them to use the savings to increase their students' Pell Grants. This may not be the only solution to the problem, but it is worth taking seriously. For too long, the arguments about student loans have been clouded by a phony dichotomy between the supposedly "free market" government-guaranteed loans and the "big government" direct loan program. In fact, the government-guaranteed loans are a form of corporate welfare. Maybe it's time to change the rules and make sure that more of the student loan money goes to students, not banks.

http://www.washingtonpost.com/wp-dy...-2005Feb16.html (requires registration)

	18-02-2005 09:48									#2
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financial aid increases university tuitions.

	18-02-2005 09:50									#3
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Repeat after me, government is bad. Now, stick a needle in your head, suck out half your brains, and you can be a libertyrant.

	18-02-2005 09:52									#4
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quote: Originally posted by Lawrence of Arabia financial aid increases university tuitions.

Not the point, even if it's a fact and not a dubious assertion. The point is that, in the name of free market ideology, the government privatized student loans, a move that ended up costing taxpayers more than 10 times what the loans cost when offered by the government itself.

	18-02-2005 09:53									#5
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quote: Originally posted by Lawrence of Arabia financial aid increases university tuitions.

That's rather disengenuous. Only the amount provided by the university increases tuition, and as it increases the number of people who graduate from college, it also incerases the number of alumni contributing to the university, whih pushes tuition down. Money spent on higher educations comes back to us in spades.

	18-02-2005 09:54									#6
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quote: Originally posted by Rufus T. Firefly The point is that, in the name of free market ideology, the government privatized student loans,

Nah, student loans were always privatized. In the mid 90s, they began offering direct loans.

	18-02-2005 09:57									#7
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quote: Originally posted by chegitz guevara Nah, student loans were always privatized. In the mid 90s, they began offering direct loans.

Really? Holy sh*t, that means Clinton actually did something worthwhile as president. Well, I'll be...

	18-02-2005 09:58									#8
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quote: Originally posted by Rufus T. Firefly Not the point, even if it's a fact and not a dubious assertion. The point is that, in the name of free market ideology, the government privatized student loans, a move that ended up costing taxpayers more than 10 times what the loans cost when offered by the government itself.

Aaaaaah, that explains why the private student loan companies offered me such insanely low interest rates (just over 2%) if I refinanced my government loans to their private loans.

Not quite all the extra money is going to the loan companies, some gets to students in the form of even lower interest rates.

And as far as financial aid driving up tuition, hell yeah! I wish tuitions would double so that there'd be more money for financial aid

	18-02-2005 10:02									#9
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Privitization is not the panacea that the reactionaries make it out to be. In many cases it has made things much more worse or expensive.

Some big government programs work, and work really well.

It's like anything, they can be either good or bad.

	18-02-2005 10:03									#10
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quote: Repeat after me, government is bad. Now, stick a needle in your head, suck out half your brains, and you can be a libertyrant.

heres how you organize political thought from 'needing least IQ' to most (from left to right)

Fascism - Conservatism - Centrism - Socialism - Communism - Libertaranism.

while it may seem you are smarter, this diagram proves otherwise.

	18-02-2005 10:17									#11
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Nope, see Ayn Rand. QED.

I wonder how much money goes through the subsidized private lending program compared to the DoE program...

	18-02-2005 10:19									#12
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every movement has its dumbasses. cant make her representative of all. QED.

	18-02-2005 10:23									#13
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You said "needing least IQ." Dumbasses count most of all. So Ayn Rand, as one of the dumbest people ever to exist, is a clear contradiction.

	18-02-2005 12:11									#14
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quote: Not the point, even if it's a fact and not a dubious assertion. The point is that, in the name of free market ideology, the government privatized student loans, a move that ended up costing taxpayers more than 10 times what the loans cost when offered by the government itself.

I've heard this before. The New Zealand Government offers direct loans (which are underwritten by local banks, but from the government).

Critics have argued that the cost of retrieving the loans, the inevitable defaults (especially among women), the administration costs, and the cost to New Zealand as graduates move overseas to make enough to repay the loans, means that it would have been cheaper in the long run to charge everyone $500 a year cash and to have given them the equivalent of the dole while studying (in other words: the previous system).

But no... the cultists prevailed.

	18-02-2005 12:15									#15
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Lawrence, the problem with Libertarianism is, as I've said again and again, that it has little prospect of dealing with market failures. Market failures are all around us, in fact they are the norm - we just don't notice it.

While it might be nice for you to believe that individual incentives are always aligned with collective incentives, the very thing that makes this true in some cases, renders it false in others.

There is no practical prospect of a completely market economy, or even one that comes close to what Libertarians want - we simply face too many collective action problems, and the only workable solution to these that anyone has yet discovered is state intervention.

	18-02-2005 17:23									#16
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quote: Originally posted by Ted Striker Privitization is not the panacea that the reactionaries make it out to be. In many cases it has made things much more worse or expensive. Some big government programs work, and work really well. It's like anything, they can be either good or bad.

Just because something is "privatized" doesn't mean that it is well contemplated, or anything more than a kickback scheme for that matter. California's "privatized" energy system is an excellent case in point, system so poorly designed that failure was a foregone conclusion. Even a privatized system must be designed to take advantage of the things that the private sector does well, just as government systems must take advantage of government economies. The best of all worlds is when systems are designed so that their subsystems are parceled out to whichever system fits them best. This requires a lot of intelligent and honest management, and at least the oversight must come from the government.

	18-02-2005 17:29									#17
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The solution to our nation's shortage of engineers and other high value degrees is easy. Everyone who majors in designated high value fields gets 100% free tuition while people who choose to major in low value fields (dance, sociology, what ever) end up with little financial aid. Students will chase the money.

	18-02-2005 18:00									#18
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You could simply pay your engineers more money.

	18-02-2005 18:03									#19
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Or put greater emphasis on math and science earlier on. See the Magnet programs.

	18-02-2005 18:30									#20
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I was afraid that the magnet program would erase my hard drive.

	18-02-2005 19:06									#21
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Dude....

	18-02-2005 19:12									#22
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quote: Originally posted by Boshko Aaaaaah, that explains why the private student loan companies offered me such insanely low interest rates (just over 2%) if I refinanced my government loans to their private loans.

IIRC, those are not government subsidized.

	18-02-2005 19:16									#23
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quote: Originally posted by axi You could simply pay your engineers more money.

We already pay the top in the world which is why we're sucking in huge numbers of engineers from Europe and Asia. I would like to see citizens encouraged to do those but right now they can take finger painting as a major and get the same student aid as a major the economy wants.

	18-02-2005 19:16									#24
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The reason for the difference is: when a private bank hold your student loan, the government is paying your interest. When the government holds your loan, no interest is being paid at all. The same when you have a deferrment.

	18-02-2005 19:20									#25
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Totally disagree. Universities should be about intellectual curiousity, not grinding out cogs for the economy.

That said, universities ought to axe some of their more rediculous degree plans.

	18-02-2005 19:28									#26
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quote: Originally posted by axi You could simply pay your engineers more money.

We pay our engineers lots, as Oerdin notes. The problem is, we don't stress math and science enough in school or make it interesting to kids.

	18-02-2005 19:40									#27
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quote: Originally posted by chegitz guevara The reason for the difference is: when a private bank hold your student loan, the government is paying your interest. When the government holds your loan, no interest is being paid at all. The same when you have a deferrment.

That sounds almost the same as Bush's motivation to privatize social security.

	18-02-2005 19:46									#28
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Yeah, like we need to be giving money away to banks for no reason. Not only do the banks get guaranteed interest payments, but the get artificially high rates, too (right now, anyway). That's only because our interest rates are so low at the moment, and student loan rates are set by law. In addition, you cannot declare bankruptcy on a student loan. If you default, they start taking it out of your tax refunds.

	18-02-2005 20:10									#29
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Re :engineers

We need more vocational schools, and new institutions designed to teach engineering and such exclusively. If you want to give them extra money, fine, but the idea of cutting money form other fields is absurd. Heck, if we all did direct loans instead of the subsidized, the billions in savings could be passed along to engineering pet projects.