The polls are closed and we didn't make the cut. Sixteen education-related blogs made Jay Matthew's Top 10 list and we weren't one of them (although, we're still new). While it's tempting to criticize Matthew's fuzzy math, we understand the difficulty of his task, and the right thing to do is to recognize the excellent work done by all the people that contribute to those blogs. Especially, we'd like to say congratulations to our friends Andy and Alexander. They may not always get along, but we've worked with both in the past and have a lot of respect for them.

While we may have missed out on the big prize, there is some joy in Mudville. One of our recent blog posts got picked up and commented on by one of the real big fish in the blogging pond. TPM Cafe's Warren Reports gave us a nod in this post.

The really interesting thing though isn't the post itself (no offense to TPM Cafe). The interesting part is in the comments. TPM commenter "HeyNorm" makes an argument very similar to that put forward by one of our most frequent readers and commenters in response to "The Lender of Venice?"

Our reader "David Starr" writes:

"Of course, there may be another,
less sensational reason why Sallie Mae 
is so successful: It's well managed and 
efficient in a low return, high volume 
business? The reliable analytical organizations 
you cite have also been quick to point out that 
the government's cost estimates don't tell 
you how much direct loans REALLY cost.  
CBO said in 2005: "The subsidy calculations... 
are NOT DESIGNED TO FULLY CAPTURE THE 
ECONOMIC COSTS TO THE GOVERNMENT."  

“[T]he estimates are based on projections
of key variables for many years into the
future and therefore are QUITE UNCERTAIN." 

Heck, the Clinton Era IG for the Department 
of Education cautioned, "a total cost figure for 
any one year DOES NOT DEFINITIVELY answer 
the question of whether the FFELP or FDLP 
is more expensive.”"

HeyNorm and David Starr got us thinking a bit about our presentation. We get pretty deep in the student loan weeds sometimes and move quickly without always describing the basics for our readers. The fact this same line of reasoning keeps popping up on other blogs suggests that we need to elaborate on our thinking.

Starr is correct that Sallie Mae appears well managed and efficient. Sallie didn’t squander the advantages given to them as a quasi-governmental organization when they privatized. They have been very aggressive about growing their market by expanding into private loans as well as by offering “enrollment management” and consequently “financial aid leveraging” services.

From a shareholder's persepective, Sallie Mae Chairman Al Lord has done a tremendous job and deserves the praise lavished on him by Wall Street insiders. However, we tend not to examine these things from a shareholder's perspective. We didn’t make up those Wall Street quotes about Sallie Mae for sensational purposes.  Those quotes are verbatim from Morningstar Ratings, which has a reputation as being the top rating agency for financial services and investment purposes.

As for the caveats in the CBO and ED studies, again, our commenter is absolutely correct. CBO includes those kinds of cautions and qualifications in their reports on student loans and just about everything else. In our opinion, that’s a big part of what makes them a reliable source. They offer up their best judgment, tell you how they made it, and if they’re certain about anything, it’s that they won’t be able to forecast anything right on the nose. Five and ten year budget projections from CBO are a great example. I think TPM Cafe's arguments on this topic are much clearer and more eloquent than any I could make. To read that exchange, please click here.

The bottom line is there will always be uncertainty in projecting fiscal outcomes to policy changes. It is better to acknowledge those up front. However, the very strong preponderance of evidence from reliable analytical and independent organizations over time leads us and Morningstar Ratings service, to believe that the Direct Loan program is a cheaper alternative for the federal government than the Sallie Mae-dominated, Federal Family Education Loan (FFEL) program alternative.

Separately, the behavior of Sallie Mae and other FFEL lenders leads us to believe that their primary obligation is to their shareholders, not student borrowers.  That’s how we see the basic principles of this issue, and that's why we think there ought to be serious reconsideration of the current student loan system.

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