It’s time to mothball the Middleman Missile!
First a little fair disclosure: One of my kids is getting through college partially on the basis of student loans and partially on the basis of “parent” loans from the same or similar institutions. Another of my kids will be doing so, in fall 2010. My university is one of hundreds that have had to put themselves at some financial risk by extending additional financial aid to students both new and returning who could not come back to school without it. I just want to be fair about my relationship to the issue.
That said, the system set up to provide those loans—as has been the case with about everything that has come out of our political system in the past thirty years—has become a huge money-wasting, old boy enriching boondoggle. The Obama administration has decided to put an end to this Rube, Goldberg, Goldberg and Sons shell game and in so doing save millions of dollars a year that can be put both into the hands of needy students and back into the federal coffers.
Here is how the scam works:
The government decides to give loans to students. These particular loans are more beneficial than the usual kind, because they do not have to be paid back until the student leaves college. They are usually, not always but usually, at a lower interest rate than those offered by conventional banks. In some cases part of that interest rate is paid by the government.
Then somewhere along the line, some genius decided that it would make more sense to plop a big for profit institution down into the middle of the mix, because as everybody knows the 21st century American man ain’t the fighting man nor the workin’ man. The 21st century man is the middleman! So now it goes like this. The government hustles up some money to lend to a student. Instead of just giving the money to the student directly, the government pays this middleman a fee to hand the money over to the student and manage the loan. Keep in mind, the institution is never in any danger of default. The government guarantees the loan. The company is in no way on the hook.
“Okay,” you say. “That’s busy work. Farm that part out.” But wait! I’m not done. The company doesn’t just make make money for administering the loan. Once the loan is finalized, the company sells the loan back to the government. In addition, while the company is administering the loan, it is also “partnering” up with a bunch of other companies to offer enticements to loan recipients to “subscribe to this” “eat here” and “fly us” for tenths of percentage points off of the interest rate to make even more money from its risk free investment.
The Obama Administration has decided that the middle man is getting too fat off of being fed by both sides, and that it makes better sense for the system to manage its own loans (which by the way it did for decades before the middle man was injected into the system). So they put together a bill that would remove the artificial institutional barrier and save tens of millions of dollars. That bill however is being blocked, in and around Congress, by elected officials who are putting the needs of a few of their business buddies ahead of those of hundreds of thousands of college students.
Hold on there Lefty! Before you yank on your big papier mache Cheney Head and take to the streets, take notice. You might recognize some of these names: Harry Reid and William Jefferson Clinton being among the most prominent. Mr. Reid and various of his allies have hundreds of constituents working for Sallie Mae and other student loan banks who would lose their jobs in this transition. It is no surprise then that they are opposing the plan and that the most powerful lobbyists and arm twisters from the Clinton years are pulling the strings.
In this way, student loan reform has become a smaller version of military modernization—the fancy term for closing bases and canceling expensive weapon systems. While there is no plan on the table, all sing in harmony that “tough choices have to be made”, but when those plans are laid on the table, the song becomes “I didn’t mean me.”
Hence the title “The Middleman Missile.” Sallie Mae and her friends are essentially peace time weapons systems that have been deemed unnecessary in the war we are fighting in the years to come. Making a student carry the extra baggage added to his debt by Sallie’s cut is like making the modern infantry shoulder a musket.
Let’s be clear. This has nothing to do with the issue of whether the government should be in the business of passing out student loans at all. A case can be made that such is the business of the private sector. That case however is not relevant here. The issue here is that if the government is going to be in the student loan business it ought to run that business well—that means cutting out the waste, eliminating duplication and keeping its eye on the ball, not feathering the beds of contractors and political buddies of either party’s kingpins.
This also has nothing to do with whether the student loan bill should be packaged with other legislation. I don’t like it when either party does that; it muddies the water in an already horribly polluted pond, but where it is should not interfere with what it is.
What it is has to do with making it possible for people who need a college education and who have worked hard throughout their young lives to qualify for one to be able to afford it. That means making smart choices about what belongs and what doesn’t. That might even mean protecting a generation of workers–maybe the most important generation since the 1950s–at the expense of a few who like it or not are the modern equivalent of coal shovelers on diesel trains.
That means being smart. It means being candid. It means canceling the Middleman Missile.