Its simplicity is probably why Obama eliminated it straight-off in his budget. But the budget hasn't passed yet. And even bad ideas have their defenders. The New York Times reports that the student loan industry has brought in some heavy hitters to defend their giveaway. "Tony Podesta, whose brother, John, led the Obama transition, and Jamie S. Gorelick, a former deputy attorney general in the Clinton administration." Whatever Podesta and Gorelick are costing is nothing compared to what Sallie Mae stands to make if the program is preserved. And they're really the program's only hope. If they can save it, they'll be legends in their time. This will be a good test case for the power of lobbyists amidst the Obama administration. It's an indefensible program in a time of unsettling budget deficits. The chosen lobbyists are Democratic heavy-hitters. Their targets are Democratic congressmen. They will be offering contributions for Democratic campaign chests and raising funds for Democratic campaigns. Anyone want to take odds?For many years, the federal government supported college education by guaranteeing bank loans to students. If a student defaulted on his loan, Washington would simply pay back the difference. In 1993, Clinton undertook to reform the program by cutting out the middlemen and simply having the federal government issue the loans directly. Clinton hoped to save money for the government and plow some of those savings into lower interest rates for students. Of course, private lenders who benefitted from the no-risk profit stream balked and forced a compromise whereby both kinds of loans--guaranteed private loans, and direct loans from the government--would exist side by side.Recent years have shown beyond a doubt that the direct lending program works better. Every independent analysis--by the Congressional Budget Office, by the Office of Management and Budget under each of the last three presidents, and by the New America Foundation--has found that direct lending is cheaper. The guaranteed-loan program managed to cling to life through its congressional patrons and through simple graft. In 2007, a major student-loan scandal emerged when it turned out that private lenders paid off college administrators to drop out of the direct lending program and steer students to them.Obama thus proposes to save the taxpayers more than $4 billion per year by ending the guaranteed loans. This is as straightforward a case as you can find of a fight between special interests and the public good.
