The New York Times reports (as did the Washington Post last week) that the Obama Administration’s student-loan reform package is in jeopardy. This is unsurprising. The current federal student loan system involves the transfer of tens of billions of dollars from the public treasury to private corporations through a sweet deal of locked-in profit margins and guarantees that taxpayers will make good on loan defaults. Because the loan bill, having passed the House of Representatives last year, has been held up in the Senate for months pending the resolution of health care, that’s given private banks and loan companies plenty of time to take some of the tens of billions of dollars of taxpayer funds they’ve received in the past and use them to hire lobbyists and former Congressional staffers to advocate on behalf of receiving additional tens of billions of dollars of taxpayer funds in the future. Because the United States Senate is no longer a functioning democratic institution, they might get their way.
One of the key elements supporting student-loan reform has been the tacit endorsement of colleges and universities. It’s not hard to see why — Obama wants to transfer $87-billion in bank subsidies to Pell grants, community colleges, early childhood education, and improved graduation rates. The higher-education lobby hasn’t exactly been beating the drums on behalf of the legislation, but they haven’t opposed it, and that means a lot. Which makes this particularly disappointing:
Some financial-aid administrators at colleges around the country say they are worried that the political uncertainty over the loan proposal and the one-size-fits-all approach of the White House’s approach could hurt colleges and students. “We’re caught in a political struggle,” Caesar Storlazzi, the chief financial aid officer at Yale, said in an interview. Like a wave of other colleges in recent months, Yale decided in November to switch from private-sector loans to the federal government’s direct-lending program. But with passage of the White House plan now appearing “less inevitable,” Mr. Storlazzi wonders whether keeping the private lenders in business is better for students. “It really felt like the administration was just shoving this down our throats,” he said. “It feels a bit like a federal takeover.” With competition among lenders, he said, “We get better prices and services.”
From the standpoint of pure self-interest, this makes sense. Yale doesn’t need federal money — it’s an immensely wealthy institution with a $16-billion endowment, the second-largest in the nation. Yale doesn’t care if more money goes to Pell grants — Yale students are disproportionately wealthy and less than 10 percent are eligible for the Pell program. Yale doesn’t need help with graduation — 97 percent of students graduate. Yale isn’t a community college and its students and their children will get all the high-quality early childhood education they need. Of course Yale gets better prices on loans — less than 1 percent of its borrowers default.
There’s nothing in the student-loan reform bill for Yale, because the bill was specifically designed to help the 99.9 percent of institutions and students who are less fortunate. Given that, I can see how a generalized sense of annoyance about federal lawmaking would lead one to publicly disparage legislation that will help hundreds of thousands of disadvantaged students afford college and earn degrees.