Yet Another Government Takeover: Student Loan Edition

Mar 17, 2010
Press | Original Article

This week will be a defining moment for Congress and our country. As Democratic leaders map out their health care end game, we as elected officials have a choice to make: Will people control their lives, or will government?


The stakes of the health care debate are clear. On the table is a bill that would put the federal government in charge of one-sixth of the American economy and, perhaps even more stunningly, the way Americans get medical care. Yet far too few Americans realize there is another government takeover in the offing – this one in how Americans pay for college.

First, some history. Since 1965, the Federal Family Education Loan Program has helped tens of millions of students and parents by providing low-cost, federally guaranteed loans. This public-private partnership offers students and schools choice and competition among loan providers, as well as essential value-added benefits such as college outreach, debt management and financial literacy.

For these reasons, FFELP has consistently been the more popular choice among colleges and universities. It leverages the innovation and competitive forces of the private sector with congressionally mandated benefits and protections that keep interest rates and fees low.

Yet right now, the Majority in Congress and the President want to make it more difficult to pay for college by putting the government between you and the money you need to pay for higher education. 

The Administration wants to end FFELP in favor of a 100 percent Direct Loan program. Under this approach, the federal government will become the sole originator and collector of student loans, forcing the roughly 4,000 schools who have chosen FFELP to the government-run alternative.

Stunningly, they plan to perpetrate this government takeover by quietly tucking it into the infamous health care plan now careening toward a final vote. It is the culmination of nearly two decades of Democratic plotting to crowd out the private sector and federalize approximately $100 billion in annual borrowing.

In an ironic twist, the Direct Loan program was first conceived as a “government option” rather than a complete government takeover. For a decade and a half, the government-run Direct Loan program was available to schools as an option, alongside FFELP. Not surprisingly, schools voted with their feet – roughly four out of five colleges in America have consistently chosen FFELP.

Not satisfied with the unpopularity of the Direct Loan government option, Democrats have now decided to make it the only option for colleges and their students. The relentless pursuit of a government option for health care was a transparent attempt to do to medicine what Democrats are now doing to student lending: putting bureaucrats in charge over the wishes of the American people.

Until the global credit markets collapsed, FFELP loans were financed exclusively with private sector capital. Congress has temporarily injected federal funding and purchase agreements to cover a portion of FFELP originations in the current economic downturn, but when the economy recovers, there is no reason the FFELP could not return to a model that leverages private capital to finance the largest single source of student financial aid.

In contrast, Direct Loans are financed with Treasury borrowing. This poses a risk for taxpayers and places a stunning amount of long-term debt on the books at a time when America is borrowing more than ever from China and our other foreign creditors. If the Majority has its way and ends FFELP in favor of a government-run lending scheme, the Department of Education will become one of the country’s largest banks—originating more than $100 billion in federal student loans each year.

During these tough economic times, we should be doing everything we can to make education more accessible. Ending a proven, and successful, student loan system in favor of a one-size-fits-all government program only will make it more difficult for American students to receive a 21st century education, ultimately putting our nation at a competitive disadvantage. The Democrats’ thirst for a bigger, more intrusive federal government is putting both health care and college lending at risk. What’s next?

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