FAST AND LOOSE ON STUDENT LOANS.

One recent victory for the president was getting his student loan reform effort -- which will save hundreds of billions of dollars by shutting down unnecessary subsidies to, you guessed it, bankers -- included in the congressional budget reconciliation process, thus preventing an opportunity for Republicans to filibuster it.

But that doesn't prevent them from saying any old thing they like, so here is Sen. Judd Gregg at The Wall Street Journal:

The Democrats, he says, pulled the same public-private switcheroo before with student loans for college. Back in the late 1990s, "there was a huge debate in the committee . . . between myself and [Senator Ted] Kennedy over a private plan versus a public plan." In the end, they compromised -- the government would offer loans directly to students, but that program would have to compete with private-sector lenders. "And the agreement was very formal, and the record shows this very clearly. We agreed to level the playing field, put both plans on the playing field at an equal status and see who won. Well, private plans won. Big time."

Given the choice, most borrowers went to the private sector for their loans.

Hm. That's not quite accurate. As New York State Attorney General Andrew Cuomo discovered a few years back, one of the reasons that private student lenders were succeeding was the practice of bribing financial aid officers to push private sector loans on students, who tend to rely on the programs endorsed by their college. Where did all that kickback money come from? Why, your pocket, taxpayer.

While Gregg may live in a free market fantasy where impartial borrowers are choosing between different plans, out in the real world it's a much more complicated game, where student lenders' ability to give kickbacks to college officials and put on slick marketing campaigns increases their market share. I just don't understand why we should spend so much tax money on those things when we could just be getting the loans themselves for much cheaper. It's ok, though, since Gregg is a big deficit hawk, I'm sure if he tells us we need to give hundreds of billions of dollars to bankers for them to bribe people, he must be right.

Update: Bring it, Lender Lobby.

-- Tim Fernholz

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