Now that all the wealthy staffers with no student loans have left the building, the new White House is primed and ready to set its sights on the private student loan industry and its “unethical business practices.” In my opinion, Obama’s White House has just sent a shot across the bow of Sallie Mae’s pirate ship. Albert Lord and his fellow plunderers will soon be walking the plank. But while the White House seeks to make it right for future borrowers, please do not overlook the wrongs that are being perpetrated every single day against current private student loan borrowers. Throw a life ring to the borrowers who are already burdened with these mafia- style loans by restoring consumer protections.

In a recent article about community banking ("To Save America's Finances, Bring Back Community Banking"), two New America Foundation fellows argued for government steps to strengthen community banking.

Note their objective was to strengthen, not takeover, or nationalize, community banking. Their goal is a strong and vibrant community banking sector. Clearly, they possess a fundamental faith in the private sector to carry out an important market function.

The fellows in Higher Education Watch have no such faith. They have never made an intellectually honest, coherent argument for a government takeover of all federal student loans.

If it’s "predatory" marketing practices they don't like, they've never made a case for why regulation cannot stem them.

If it’s FFELP’s cost they don’t like, they’ve never made a coherent case for why customer service, school preference, competition, consumer choice and innovation don’t matter.

If it’s profits they don’t like, well, they don’t have anything to worry about anymore. More important, they’ve never said what level of profit is acceptable to them. They’ve never explained why earning a profit is improper.

If it’s auctions they want, they’ve never made a conherent argument for why auctions are in the best interests of consumers. Consider what Joseph Stiglitz recently wrote about financial system regualtion:

"Governments do not typically auction off the licenses to the highest bidder (doing so might not be the best way to get the best bankers)."

So, the Obama administration is finally ready to render the coup de grace to the FFEL program? True to form, Mr. Obama supplies some clever distortions to mask his real goals and motivations. Lumping the FFEL industry into the same sentence as the oil and gas industry is disingenuous! While it’s correct that the FFEL industry is subsidized by the government, it is in no way analogous to the oil and gas industry subsidies as Mr. Obama implies. Eliminate the subsidy to the FFEL providers and the industry is no more—eliminate the subsidy to the oil and gas industry and it doesn’t skip a beat! Next we have the “repeatedly used unethical business practices”--these should rightly be frowned upon by Mr. Obama. But for all the exposés, settlements, inquiries, and so on, it’s telling that not a single student lender has had to pay any restitution to any of its customers. Surely, if the violations of the Andrew Cuomo era where so egregious, justice would have demanded some reparations be paid to the affected borrowers! But none of Andrew’s millions ever went directly to these purportedly-aggrieved borrowers.

The truth is, that the flap over student lending has never been about unethical business practices, or which program is cheaper versus the other. No, at its core, it is about big government versus small government. It is about our Congress being limited by the Constitution to take no action, unless it is both a necessary and a proper extension of its enumerated powers therein. As Alex Hamilton has made abundantly clear in his post above, there has been no failure on the part of private lenders to deliver on their mandate to America’s college students. Is the end of the FFEL program a necessity? Is this the proper course of action? Inquiring minds want to know. The power to regulate is not the power to destroy.

Alex Hamilton's regurgitation of the tired old line of "...customer service, school preference, competition, consumer choice and innovation" shows how out of touch with reality the increasingly desperate bleatings of the student debt industry are.

First, a quarter-point interest break after years of on-time payments is not "innovation."

Customer service? A call center is a call center is a call center.

Competition and consumer choice? Students go with whichever commodity loan product is pushed on them by the "helpful" financial aid office. The chump change "fines" levied by Andrew Cuomo will not change this.

The fact of the matter is, the nearly 50-year-old student loan system needs to evolve from a system of banks, useless state guarantee agencies, and abusive, law-breaking collection agencies to one which is truly streamlined, law-abiding, and fulfills the now-inherently governmental function of higher education funding. The Direct Loan program is the most logical end result. Higher education is now too integral to our success as a nation to be entrusted to the likes of an unregulated, profit-driven business like the one we have now.

As Patrick Bott acknowledges, remove the Federal subsidies in FFEL and "the industry is no more." Supporting an industry whose very existence is solely predicated on Federal subsidies seems like an odd way to demonstrate Alex's "fundamental faith in the private sector to carry out an important market function." If the point of the exercise is to ensure access to loans for students who otherwise wouldn't be served by the market, shouldn't the government's obligation be to do so in the simplest, least expensive way possible?