- The Washington Times - Friday, September 18, 2009


President Obama and House Speaker Nancy Pelosi claim that a new government health insurance option would strengthen competition and lower health care costs. If they really believe that theory, it doesn’t explain why they are pushing a complete government takeover of the college-loan industry 16 years after federal tuition loans were created to compete with loans by private lenders. The student-loan power grab offers a cautionary tale that is relevant to the health care debate.

This wasteful effort demonstrates how publicly financed alternatives to the private sector can be a slippery slope. It’s common practice for government to stick its foot in the door before taking over an industry.

The House approved legislation yesterday that would eliminate the major federal student loan guarantee program. Known as the Federal Family Education Loan (FFEL) program, it insures private lenders against defaults. If approved by the Senate, the bill would make the Federal Direct Loan Program (FDLP) the de facto national student-loan lender using taxpayer dollars.

While the more popular FFEL has its problems, this change means the creation of another entitlement that will gobble up hundreds of billions of dollars in federal spending. Much of this fortune likely will be added to the deficit. Proponents claim that about $80 billion in taxpayer dollars can be saved and used to increase aid to low-income students while paying down the federal deficit. However, the Congressional Budget Office has estimated that the move ultimately will boost annual federal spending by $293 billion over 10 years, more than wiping out any potential savings.

In 1993, the Clinton administration enacted the FDLP, which was designed to be a student-loan monopoly run by government before congressional Republicans stopped a total takeover. A scaled-down program survived because backers said public loans would stimulate competition and help save money. No surprise, these promises never materialized.

Democrats now want to make good on their original plan, reducing private industry to mere loan servicers. The federalization of student loans could mean the loss of tens of thousands of private-sector jobs as it bloats the bureaucracy at the Department of Education. As Democrats move forward with health care reform, lawmakers would be wise to keep this ruse in mind.

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