Obummer's Student Loan Grab

[Yancy Derringer]

Using the guise of driving "diploma mills" out of business, socialists are trying to standardize higher education.  Why?  So they can dictate values, drive up prices and indoctrinate students.  Towards those same ends, now Dear Leader wants to grab control of the student loan industry too.  

Obama Prepares to Drive Up the Costs of Education

Posted by Erick Erickson (Profile)
Monday, January 25th at 1:00PM EST

When Obama takes to the podium for the State of the Union, one of the things he is allegedly going to push is a wholesale federal take over of the student loan industry.

Already, his plans are causing a lot of students, particularly of private higher ed colleges and universities, problems with getting financing for education. Obama intends to shut out the usual third party lenders and put everything within the federal government — under a program that has been shown repeatedly to be highly inefficient and burdensome for academic institutions.

More troubling, by putting everything under the Department of Education, universities and colleges will be forced to adhere to federal rules, some of which conflict with the values of sectarian institutions that presently use the third party student loan system for their students.

The feds controlling the student loan industry means the feds get to tell academic institutions what values they can and cannot promote among the selection and disciplining of their students.

Brigham Young, etc. better watch out.

More troubling, Secretary of Education Arne Duncan sent out a letter recently to colleges and universities telling them to get on board the federal program right now. There’s just one problem — the Congress has not passed the program. Likewise, the Department of Education is encouraging outside groups to lobby for the legislation, a clear violation of federal law.

In other words, Duncan is trying to get schools that have expressed real apprehension over the program to get into the program now so Congress will believe the expressed concerns have been ameliorated.

The wholesale take over of education funding by the feds will, like a wholesale take over of healthcare, drive up prices through decreases in competition and, more troubling, allow the feds a backdoor into higher education learning and indoctrination.

[Herbert Spencer]

The wholesale take over of education funding by the feds will, like a wholesale take over of healthcare, drive up prices through decreases in competition and, more troubling, allow the feds a backdoor into higher education learning and indoctrination.

Is that a Contreras or Tailpipe Chip reference?  

Actually, when the feds totally control accreditation and totally eliminate independent schools and colleges from higher ed, they aren't going to need to bother with any back doors because they will own the whole building and everyone in it.  

If you think the "global warming" scam hatched in academia is bad, just wait until government run unis start issuing dire warnings of "global sodomy shortages" or "global man-boy love deficits."

[Winston Smith]

Obama’s Wrongheaded Student Loan Plan

Tuesday, January 26th, 2010
by Francis Cianfrocca

Barack Obama came to office promising universal healthcare, to end the carbon economy, and to fix education. Numbers one and two were clear enough, but we’ve never gotten too much insight into number three, beyond Education Secretary Arne Duncan’s “Race to the Top” program. (The latter is essentially a more expensive remake of No Child Left Behind.)

On the finance side, the student loan industry is populated by Citigroup, Sallie Mae Inc. of Indianapolis, some other large players and hundreds of smaller ones. A year ago, Obama’s people quietly made clear to people in the industry that they could expect the government to take over their business. That meant specifically that banks and institutions like Sallie would be forced out of the business of providing subsidized finance for student loans.

What’s your obvious move, faced with something like that? You scramble to convince the government that you deserve to become a servicing provider to them, giving up the financing business in favor of a lucrative (and risk-free) business originating loans and handling the payment streams.

That is attractive to the government because it saves them the trouble of standing up a whole new student loan bureaucracy. They’ll still stand up the bureaucracy, of course, but now all they’ll need to do is demand lots of unreasonable reports and audits from the servicers who used to be finance providers.

But why go to so much trouble, on top of kicking in the teeth of yet another private industry?

Some recent reporting may shed light on that question. Obama is apparently getting ready to propose big changes in how people deal with their student loans. Today, people pay their student loans like they pay car loans and mortgages: you owe a fixed amount of money, and you pay a fixed amount per month until you the note matures.

But with student loans, Obama reportedly now wants to put time and income-based limits on how much you have to pay back. Your student loans payments will be capped at no more than 10% of the amount by which your income exceeds a “basic cost of living” amount. And all your debts will be forgiven after 20 years if you work in the private sector, or 10 years if you have a government job.

Higher education is like healthcare in that payments to providers are already heavily subsidized by government. Also like healthcare, the cost of education is rising every year far more quickly than the general inflation rate. Obviously, higher education is an increasingly large burden on middle-class families.

But colleges and universities are also like hospitals and medical practices in another sense: with no built-in incentives to cut costs, they don’t cut costs. That’s the problem we ought to be looking to solve. Instead, Obama wants to create yet another middle-class entitlement that will quickly become permanent, and will permanently enrich a special class (educators) at society’s expense. And the special treatment given to government and “public service” workers is interesting too. Their loans expire after only 10 years rather than 20 years for everyone else.

How might that work? Well, say you graduate with a newly-minted JD and take a job in the Federal bureaucracy. You might want to remain at a relatively low pay grade for 10 years, thus minimizing your student-loan repayments. At the 10-year mark, your loans are extinguished, and you can start stepping up to much higher pay levels. I can easily see this kind of promotion model becoming standard practice in government.

It’s easy enough to theorize that this idea has been in the works for a very long time. That’s because the administration started socializing the takeover of the student loan industry a full year ago. This scheme can only apply to newly-written student loans, unless the government is willing to go to all the owners of existing loans and agree to fund the original payment streams of people whose repayment obligations are reduced or extinguished.

Today, student loans are packaged into asset-backed securities just like mortgages are. But most people have to keep paying their loans until they mature. Student-loan analytics aren’t totally messed up by the presence of a prepayment option, as mortgages are. This has the effect of reducing student-loan interest rates, because they can be funded by a broader universe of investors.

But there’s simply no way to get a private lender to agree to lend money if the repayments are optional at the borrower’s discretion, and the loan is automatically extinguished after 10 or 20 years. How could you even compute an interest rate for such a thing? This whole idea is only compatible with loans that are financed by the government.

We don’t know a lot about this yet, as there are no concrete proposals. (And anyway the White House might do what they’ve done before and leave the specifics to Congress to determine.) One very important question would be: does this apply to loans for graduate school or just undergrad? It makes sense to me that it should only be undergrad, because everyone needs an undergrad degree. As a taxpayer, I’m not chirpy about the idea of funding sociology PhDs for people destined to be cocktail waitresses.

Also, we need to discuss the impact on labor productivity. Having a massive student loan is not only a very unpleasant (and sometimes scary) pain in the neck. It also gives you a very good reason to stay employed and work really hard.

Overall, this proposal makes extensive consumption of higher education a no-brain decision. I agree that the middle class is harmed by the skyrocketing cost of higher education. But to repeat the parallel with healthcare, people will automatically use too much of anything they don’t have to pay for.

The right way to solve the problem of rampant education cost-inflation is not to shift the costs to taxpayers, but to make colleges and universities more efficient.

[ham]

I still maintain the problem lies with the entire concept of B&M education. It is like one of those fuel-hogging 1970s sport cars...the problem is not whether driving with my windows open will fix fuel consumption, or whether the coupe model is better than the traditional model...the problem is the whole car, period.

[Yancy Derringer]

Not a single comment about this on any of the other boards.  Whilst Obama is noisily attempting to nationalize the health care industry, he is sneakily continuing his plot to nationalize the student loan industry.  Coming soon to higher ed: the courteous efficiency of the DMV combined with the efficient courtesy of the post office.  Speak now or forever wait on queue.  And that same great choice of programs that comes with "one size fits all."  Comrade Obama knows what's best for you.

Obama-Care Meets Obama-Ed

March 10, 2010 By Peter Wood

Of President Obama’s three big takeovers—cap ‘n trade, health care, and higher ed—higher ed has garnered the least public attention. That may change now that the administration is attempting to impose its wishes by legislative trickery.

The health care bill that the Democrats hope to pass by “reconciliation” to avoid the normal Senatorial voting procedure is now being amended to include the administration’s Big Grab on federal student loans.  If this works, we will have one bill in which the federal government not only takes primary control of American health care but also simultaneously takes practical control of American higher education.  

Some background:  last September, The Wall Street Journal (“The Quietest Trillion”) gave an early heads-up to the administration’s then-plan to move the Department of Education from a 20 percent to an 80 percent share of the student loan market.  A bill passed the House that month that would have eliminated private lenders from the federally guaranteed student loan market by July 1, 2010.  It came with a promise that taxpayers would save some $87 billion from substituting a government-run service for the rough-and-tumble of private lenders.  In October, Secretary of Education Arne Duncan sent a letter to colleges and universities across the country advising them to get their institutions ready for a 2010 implementation of the new rules, dubbed “Direct Lending.”  College officials, some House Democrats, and a few Republicans expressed their uneasiness at the new plan.

Duncan didn’t yield an inch.  Here he is in a February op-ed in the Washington Post arguing his case that “direct student loans” will save taxpayers billions and make life easier for “educators, engineers and computer scientists—the backbone of the new economy.”  

Not everyone is convinced.  A few days ago, another Secretary of Education—Lamar Alexander—inveighed in WaPo on what the folks at Department of Education “haven’t told us.”  Senator Alexander notes that DOE plans to borrow from the Fed at a 2.8 percent interest rate, lend to students at 6.8, and splurge with the difference with a massive new spending program.  He reports that the Congressional Budget Office has lowered the estimated savings from kicking out the private lenders from $87 billion to something like $47 billion.  Some 2,000 private lenders will be forced out of this business.  Services to students driven by industry competition will be eliminated in favor of typical federal bureaucratic “efficiency.”  And those “educators, engineers and computer scientists—the backbone of the new economy”?  They will be spending years longer and paying lots more to pay back loans that are actually being used to fund Congressmen’s favorite edu-pork programs.  

The effort to shoehorn the direct lending program into the health care reconciliation bill seems odd on its face.  CBS News suggests that the maneuver is prompted partly by Democrats trying to get on top of the wave of student protest over college costs that surfaced during the March 4 campus demonstrations.  But CBS also thinks that the Democrats are just grabbing an opportunity that might not come again.  “Reconciliation,” if it works, is a way of short-circuiting all the inconvenience of having to line up sixty votes for a controversial measure.  Why not slide as much unpopular legislation as possible into one giant, unpopular, economy-ruining, budget-busting, anti-democratic bill?

Student loan “reform” slipped into the national agenda rather quietly in January 2007 when New York Attorney General Andrew Cuomo began to investigate reports that Sallie Mae, the nation’s largest lender to students, had been engaged in some questionable practices.  As it turned out, many private lenders had bribed college officials, and numerous colleges had abused their students by channeling them into disadvantageous loans.  The scandal snowballed.  It grew worse as then Secretary of Education Margaret Spellings appeared to stonewall inquiries and cover for the Republican-friendly Nelnet Corporation, a student loan re-financer that had gamed a DOE program to extract hundreds of millions of unwarranted payments.  The mischief culminated in an ill-considered law signed by president Bush in September 2007, the College Cost Reduction and Access Act, CCRAA, that cut the payments to private lenders in the federally guaranteed student lending business so drastically that many of the lenders—some sixty of them—simply quit.

That added more snow to the snowball by creating the prospect that students would have a much harder time finding loans the following year.  Congress recognized its mistake and in May 2008 rushed through a bill that authorized the Department of Education to buy up “debt” from the private lenders.  In many ways this was a rehearsal for the great economic collapse and bank bailouts that came later in 2008.  

In a certain sense, the private lenders who participated in the federally guaranteed student loan programs brought the house down on their own heads.  Corrupt practices combined with wildly imprudent financial dealings opened the way for the “reform” that President Obama, Secretary Duncan, and the Congressional leadership now intend to push through.  

I don’t have much sympathy with those lenders, though surely only a minority was corrupt and imprudent.  The real question is whether concentrating federal student loans in the U.S. Department of Education is really going to be an improvement.  If the legislation passes, we may well be trading a flawed system for a disastrous one.  With direct federal control of student loans will come, as surely as a hangover follows a binge, federal control over the content of higher education.

[Virtual Bison]

Diploma Mills, in the truest sense are hard to kill in the internet age.

If I were a dishonest person (which I am not) I could easily recruit a straw buyer in some country like Malaysia or Romania to put up a website and sell diplomas by Proxy. Its really easy since you just put up a slick website with pictures of tree shaded New England campuses with happy, smiling young people carrying books. Offer courses in any dam thing you want, from Medicine to Cooking to whatever... and voila, we have a school.

Incidently, did anyone happen to see the movie Accepted? That was a total hoot!

Eventually when word gets out, the school will be forced to close and then you set up elsewhere.

As sad as it may seem, the more expensive the cost of education gets, the more attractive diploma mills are. Sometimes students are unaware that they are being duped. Sometimes they are but only want a quick and cheap fix.

[Martin Eisenstadt]

[bigfoot]

Schools like Phoenix, Capella and a host of other ravenous DL/RA schools have tainted the image of correspondence education, through unsavory and unethical admission practices. The sane, affordable state approved schools always did a better job of meeting the students academic and vocational needs, without placing them in bondage financially, with crippling student loans that many will never pay off... this is where the feds need to focus their efforts...some of these schools should have their accreditation status revoked, for obvious reasons..

[ham]

the AG found that ISL had provided kickbacks to colleges that recommended its private “Iowa Partnership Loans”to their students; gave financial rewards to their employees based on the number of private loan borrowers they secured; paid bonuses to staff members at the college access centers they managed based on the number of borrowers they brought in; falsely advertised its private loan products as the “lowest cost”options available; and routinely failed to advise students and their families to exhaust their federal student loan eligibility before taking out private loans

Capitalism at its best. These social-communist crackpots are only good to toot their horn to stir hippie sensationalism...and I thought those stinky 60s and 70s were long gone.

[Martin Eisenstadt]