Submitted by Fiscal Hawk (not verified) on April 30, 2008 - 10:33am.
Rita's views may be sincerely held -- and perhaps widely shared in the student loan industry -- but they need a more thorough examination.
Would taxpayers like Congress to legislate a guaranteed profit so that lenders cannot suffer losses no matter what they do? The industry is healthier when there is an occasional shake-out of weaker providers. Many lenders that are now on the sidelines or out of the business altogether were thinly capitalized, depended on misleading marketing tactics, and victimized many students; everyone else is better off without them.
If the vast majority of lenders have not abused the system, as Rita suggests, they have nevertheless done a poor job of policing their ranks. The student loan scandals of recent years touched a wide swath of lenders, institutions, and government agencies. The cleanup by others will help the industry, but it is unfortunate that the industry did not do it itself.
The Direct Loan program's capacity may be much greater than Rita supposes. The Secretary has said that it could easily double for next year. The Direct Loan program is in fact operated by the private sector based on competitive bids; those that are now originating and servicing FFEL loans could do the same for DL loans.
Pell grant increases, funded by cuts in lender subsidies, are not dependent on any or all lenders remaining in the FFEL program, or on FFEL maintaining market share. The FFEL program costs taxpayers more than the DL program, even after the subsidy cuts, in all loan categories except DL consolidation (which is adversely affected by having to take defaulted FFEL loans). If loan volume shifts from FFEL to DL, that will be additional savings.
FFEL borrower benefits were uneven and too often structured to disappear. Sometimes they were come-ons; sometimes they were used as inducements to try to force institutions into arrangements with certain lenders to expand that lender's market share. Congress was not impressed and concluded that a better borrower benefit would be an increase in Pell grant funding.
Critics of FFEL should not be characterized as left-wing or right-wing; if there are any wings involved, they may be those of fiscal hawks. Where this reader agrees with Rita is that there may be an argument to keep both FFEL and DL operating and competitive. If FFEL starts to be more cost competitive in future years because of the subsidy cuts and improved efficiencies, then more power (and loan business) to it. But restoring excess subsidies and guaranteeing profits to all will not bring that about.
A Taxpayer's Views
Rita's views may be sincerely held -- and perhaps widely shared in the student loan industry -- but they need a more thorough examination.
Would taxpayers like Congress to legislate a guaranteed profit so that lenders cannot suffer losses no matter what they do? The industry is healthier when there is an occasional shake-out of weaker providers. Many lenders that are now on the sidelines or out of the business altogether were thinly capitalized, depended on misleading marketing tactics, and victimized many students; everyone else is better off without them.
If the vast majority of lenders have not abused the system, as Rita suggests, they have nevertheless done a poor job of policing their ranks. The student loan scandals of recent years touched a wide swath of lenders, institutions, and government agencies. The cleanup by others will help the industry, but it is unfortunate that the industry did not do it itself.
The Direct Loan program's capacity may be much greater than Rita supposes. The Secretary has said that it could easily double for next year. The Direct Loan program is in fact operated by the private sector based on competitive bids; those that are now originating and servicing FFEL loans could do the same for DL loans.
Pell grant increases, funded by cuts in lender subsidies, are not dependent on any or all lenders remaining in the FFEL program, or on FFEL maintaining market share. The FFEL program costs taxpayers more than the DL program, even after the subsidy cuts, in all loan categories except DL consolidation (which is adversely affected by having to take defaulted FFEL loans). If loan volume shifts from FFEL to DL, that will be additional savings.
FFEL borrower benefits were uneven and too often structured to disappear. Sometimes they were come-ons; sometimes they were used as inducements to try to force institutions into arrangements with certain lenders to expand that lender's market share. Congress was not impressed and concluded that a better borrower benefit would be an increase in Pell grant funding.
Critics of FFEL should not be characterized as left-wing or right-wing; if there are any wings involved, they may be those of fiscal hawks. Where this reader agrees with Rita is that there may be an argument to keep both FFEL and DL operating and competitive. If FFEL starts to be more cost competitive in future years because of the subsidy cuts and improved efficiencies, then more power (and loan business) to it. But restoring excess subsidies and guaranteeing profits to all will not bring that about.