Federal Student Loans – A Program That Has Failed Twice Before (Rep. Dan Burton)

My fellow Democrats trumpet this achievement as a great boon to students; they say millions more Americans will now be able to afford a college education. In reality, this change will not be good for parents, students, universities or American taxpayers. It is also not good for the 35,000 Americans who are currently working in the private student loan sector. The SLM Corporation, also known as Sallie Mae, the nation’s largest student loan provider, estimates it will be forced to cut 2,500 of its 8,600 employees and move from 25 locations nationwide to about 5 to 7 due to loss of activity. Access Group Inc., another student loan provider, has already cut 50 employees as the volume of new loans dwindles and is trying to retain its remaining 365 employees by servicing old loans; although it is not clear whether they can keep all of these positions.

While that may seem like few jobs compared to the auto industry, which employs hundreds of thousands of workers, with a nationwide unemployment rate of nearly 10%, should the federal government really be enacting policies that kill? American jobs? More importantly, should the federal government cut jobs in the United States to adopt a policy that has already failed when it has been tried twice before?

The federal government first experimented with direct loans in the early 1970s through the Federally Insured Student Loans (FISL) program. The FISL was so mismanaged – and because the government was so inefficient at collecting loans, default rates soared to astronomical levels – the program was finally scrapped in 1976.

The Clinton administration revived the idea of ​​direct lending (DL) in 1993 when it passed the federal direct student loan program in Congress. Once again, the reputation of the direct loan program has become synonymous with slow and inefficient service. In response, Congress passed the “1998 Higher Education Amendments” (PL 105-244) which specifically prevented the Clinton administration from phasing out the Federal Family Education Loan Program (FFEL) administered. by the private sector.

History has shown us that federal programs tend to take a one-size-fits-all approach and are often stagnant with inefficiencies and capacity failures. The federal government’s previous experiences with direct student loans seem to confirm this. If you think this time will be different, consider the fact that the government’s website for processing student loans was down for most of Tuesday, March 30, the same day President Obama signed the law putting the government into effect. charge of all subsidized student loans. Site visitors (www.studentloans.gov) in the early afternoon of Tuesday saw an error message, while users on Monday saw an error message or in the evening just couldn’t log into the site. This failure raises serious questions about how the Department of Education will succeed in moving our country’s schools and millions of students to the government-run loan scheme by July 1, when the loan modifications will take effect.

No one should really be surprised to see a massive government bureaucracy having technical difficulties. No one should be really surprised, either, when the billions in promised savings fail to materialize. The president and his supporters in Congress argue that having the federal government provide loans directly to students using treasury capital will cost taxpayers less; however, if history is our guide, there will be no real savings. Initially, the Congressional Budget Office (CBO) projected savings of around $ 94 billion over ten years. This has since been adjusted significantly downward to around $ 62 billion to $ 40 billion. What should worry all Americans is that the “Health Care and Education Reconciliation Act, 2010” contains approximately $ 40 billion in new legal spending. In other words, any potential savings for the taxpayer resulting from the consolidation would in fact be lost to new additional spending.

Since 1965, competition and choice in granting and supporting student loans have been hallmarks of the FFEL program. In this country, it is the private market that stimulates competition, sparks innovation, generates cost savings and is customer-oriented. Private sector student loan providers have developed value-added services, such as financial literacy flaw prevention programs that the direct loan program cannot or is not able to provide. According to an Ipsos Public Affairs survey, more than 90% of respondents believe they should have a choice between loan providers, and 60% believe private lenders would give them better customer service than the government.

Typically, the White House and the Democratic Congressional leadership refuse to listen to the American people and so for now at least it looks like as of July 1, 2010, the government takeover of student loans will be achieved.

More Americans will be out of work, and nothing will have been done to quell the skyrocketing uncontrolled tuition costs, which is the real problem our students face, not the modest fees the government faces. federal paid lenders to process student loans.

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