In September of 2009, the US House of Representatives passed the Student Aid and Fiscal Responsibility Act of 2009 (SAFRA) on a party-line vote, which is now being considered by the relevant Senate committee. The bill eliminates the Federal Family Education Loan Program, which subsidizes student loans from private lenders, replacing it with a 100% direct loan program to be run by the federal government. Described in more direct terms, the bill would nationalize the entire $103 billion per year private loan industry.

Lots of pretty words have been used to describe how wonderful this legislation is. It would save the government a lot of money (and we all know how important deficit reduction is to Congress). It makes borrowing easier for students, though no measurable impact on the student can be cited. There would be more money for Pell Grants and other initiatives. Literacy programs would be better funded. College enrollment would go up. And so on.

Looking under the covers of the legislation, though, another picture is revealed. Private banks, you know those evil corporations who commit the unpardonable sin of making profits and abuse their customers by lending them money at competitive interest rates, the same ones who disburse 75% of these student loans, will be cut out of the picture. Their employees who work in student loans will lose their jobs. Sallie Mae alone (the largest private lender), projects that 20 to 30 percent of its workforce related to FFEL will be terminated and 26 offices will shrink to five or six. Those that remain will largely focus on servicing the current borrowers until their loans are paid off.

Another hidden objective of the legislation is to allow the far-left to expand its ability to socially engineer our society. When Uncle Sam becomes the lender and collector, he is free to set the terms and conditions. Preferred races and groups will be benefited, while the children of other tax-payers will not. Preschools, another beneficiary of the program, will be heavily subsidized and, not surprisingly, come under the regulatory power of the federal government. A new crop of dictates will burden universities and colleges who already struggle to comply with the near endless list of mandates that are tied to state and federal education programs.

One thing we can count on with SAFRA, like any government takeover, is that its negative consequences will be broad and predictable.

• As the government shuts down the private sector, it will build up its own bureaucracy of inefficient systems and processes, dramatically increasing the overall cost of making loans.
• The government will favor and benefit the special interests and cronies wherever it can.
• Ineptitude and cronyism will drive costs ever higher – not rarely, multiples of the original estimate.
• Where government provides “benefits”, strings will be attached. This is evidenced by the huge burden the federal government already places on universities and the absolutely obscene results of these federal dictates.

Other considerations aside, the purported $87 billion savings the government would realize over ten years was reviewed by the Congressional Budget Office (CBO), who when pressed by Senator Judd Gregg, R-N.H., estimated the legislation would actually cost us, the tax-payers, an additional $40 billion over the same period. Once again, we see legislators playing fast and loose with the truth to deceive their constituents while amassing ever more power within the federal government over our lives.

For all the same, unchanging reasons, big government is bad government. The federal government should allow the private sector to do what it can (and what is better at). Where aid is needed, let the government do so in a simple, straight-forward, and transparent manner. Let it do so without bias or political agenda. Where this is not possible, the government should keep its hands off of the private sector and the lives of its citizens.

With this and all legislation, Congress ought to place a high priority on preserving the free market and empowering the people to care for themselves. Rarely is the government the solution and too often it is the problem. The vast majority of us do not want socialists or the nanny-state taking care of us. We want the government to get out of our way and to let us lead our lives as we see fit.

Sources:

• Cato Institute
• National Journal

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