Student loans: the wrong cuts - Republicans want to cut Clinton's student loan program

Washington Monthly, Oct, 1995 by Jonathan Cohn

Less Competition, More Waste

Republicans claim to be seeking free market efficiency. But with student loans, they are moving toward a system with less competition and more waste. A provision in Goodling's bill would forbid the Education Department from advertising to students the option to transfer a private loan to the government, and thus get the benefits of paying back as a percentage of income. Lenders had complained they were losing business-25,000 loans have been switched over since 1993. But they were only losing business because students saw a better deal elsewhere.

If Gooding's bill passes, who will pay for these anti-reforms? Students, most likely. Although the government requires income-contingent payback options for all student loans, private lenders have shown great resistance in the absence of government competition, and enforcing the rule is difficult. The bottom line is that pay-as-you-can loans simply aren't feasible without direct lending. Private lenders don't want to do anything that might lose them money, and with the government removed as a competitor, they'll have no incentive to offer complicated payback plans. That means fewer graduates doing noble or necessary--but low-paying--work.

The other potential loss for college students is the cutbacks in subsidies that they now receive to ease the loan burden. Republicans have put the in-school interest subsidy--which pays interest on loans while students are in school, so they can complete their studies before having to worry about loans--on the blocks. Under Republican plans, the average student debt under the Stafford Loan program could increase by more than $1,400 for a four-year undergraduate, and more than $10,000 for a four-year graduate student, according to the Education Department. Again, it's not just that students will be left with big bills. Many will be scared off from college in the first place.

The Republican proposals on student loans are indicative of their ideological world view and the true nature of their political loyalties. GOP fondness for the "private sector" is defended on the grounds of efficiency and fairness: Citizens should receive the best services possible and bloated government bureaucracies often can't deliver. But, in this case, reducing government presence means worse service, and a worse deal for taxpayers as well.

With the student loan program, Republicans have an opportunity to prove that they are truly interested in fighting government waste and protecting the working class--just as they have always claimed. Instead, they are choosing to act as patrons for rich financiers, assuming no one will call them on it.

It's not too late to prove them wrong.