Duncan Dunked in WSJ
Last week, U.S. Secretary of Education Arne Duncan had an op-ed in the Wall Street Journal declaring that it’s time to end the Federal Family Education Loan program (FFEL) which subsidizes banks and insulates them against almost all lending risk. Duncan wants to eliminate the “middle man” and have the vast majority of student loans come directly from Uncle Sam, a goal central to the Student Aid and Fiscal Responsibility Act (SAFRA).
Incongruously, after ripping the poor middle people, Duncan explains that they should actually stay firmly attached to federal funds as loan servicers. He then goes on to applaud as an incredible money-saver going to all direct lending.
Fortunately, several astute readers — as well as yours truly — saw right through Duncan’s heap of contradictions and dissembling, and the WSJ has printed numerous letters speaking the truth about student lending and SAFRA.
The Pope Center’s George Leef — who has done great higher-education work with Cato — leads things off with a letter pointing out all the perverse incentives and painful unintended consequences emanating from federal student aid. I bookend that by attacking the most aggravating of all SAFRA-related lies: that the bill would provide $10 billion for deficit reduction. Read any CBO estimate for SAFRA and you’ll see that that is just a bald-faced lie.
Of course, if they didn’t have lies, our student-lending overlords wouldn’t have much to say at all. Which is one of many reasons that the feds should get out of education — including student aid — altogether.
How’d That Get in Here?
Understandably, the public is a little preoccupied right now with efforts in Washington to “reform” health care by making it much, much worse. Fortunately, people are starting to notice that a congressional bum rush is heading right toward them — maybe they’ll be able stop it in time. Unfortunately, that is giving Washington a chance to sneak some other stuff by us.
In particular, I’m thinking of the just-introduced Student Aid and Fiscal Responsibility Act. It’s been largely ignored so far, save a little chatter about the community college stuff it incorporates. In a simpler time, it would have generated a lot more copy. After all, it will:
- end federally backed student loans that come through private companies, and instead make Uncle Sam the universal lender;
- greatly increase Pell Grants and peg their growth to the rate of inflation plus 1 point;
- balloon the federal Perkins loan program;
- authorize $5 billion over two years for elementary and secondary school facility projects, with a focus on “green” efforts;
- authorize $10 billion over ten years for Early Learning Challenge Grants; and
- furnish $12 billion for community colleges.
Not all of this, I should say, is terrible. Getting rid of the Federal Family Education Loan Program — which backs loans coming from ostensibly private companies and guarantees lenders a profit — is a good thing. But replacing it all with loans directly from D.C.? That’s a bad thing.
To be fair, transitioning from guaranteed to direct lending could save some money, especially in the short run, eliminating various fees and guarantees Washington pays to lenders under FFEL. But those savings almost certainly won’t be the $87 billion over ten years supporters claim, a number that is no doubt overstated as a result of budget chicanery and how quickly government grows. And don’t expect taxpayers to benefit from whatever savings are ultimately generated. According to the proud declaration of SAFRA sponsor George Miller (D-CA), only $10 billion of the projected $87 billion savings is slated for deficit reduction. The rest — breathtaking deficit be damned! — is going to standard, feel-good government spending, including school “modernization” projects and “early learning” grants
Which brings me to the community college components, which have, unlike the rest of the bill, been getting some media play. I wrote about them earlier this week, noting especially that they make little sense in light of Bureau of Labor Statistics numbers showing that positions requiring on-the-job training will grow in much greater numbers than jobs requiring at least an associate’s degree. What I didn’t mention was the dismal performance of community college students, who take remedial courses in droves and complete their programs at very low rates.
Ah, but we’re told that this new legislation, backed wholeheartedly by the Obama administration, is going to reform community colleges. As David Brooks celebrates in his column today:
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