By Rep. John Kline (R-Minn.) - 09/14/09 09:40 PM EDT
In 1993, Democrats in Congress worked with newly elected President Bill Clinton to ramp up a pilot program that provided loans to college students directly from the federal Treasury.
“We are not taking a free enterprise system and federalizing it. We are in fact improving the entrepreneurial and competitive possibilities,” said Deputy Education Secretary Madeleine Kunin at the time.
A decade and a half later, the pretense of competition has fallen away. In a vote expected later this week, Democrats will move to fully abolish the private sector-based Federal Family Education Loan program and replace it entirely with the Direct Loan program — the so-called government “option,” which will no longer be optional.
The flaws of the proposal are almost too many to count. In the broadest sense, the government takeover of student lending is one more illustration for the story of a ravenous federal government growing more bloated by the day as Democratic lawmakers expand its size and scope.
There is, of course, a fundamental ideological split between those who believe in limiting the power of the federal government and those who believe government holds the solutions to all our problems. The split is not entirely along party lines — more than a few Democrats agree with Republicans that free-market competition, choice and innovation are vastly superior to a one-size-fits-all federal bureaucracy — whether in student lending or elsewhere.
Setting aside ideological differences, however, we cannot ignore the very real policy implications.
The legislation set for a vote later this week — H.R. 3221, the Student Aid and Fiscal Responsibility Act — is billed by its supporters as a tool to reduce the federal deficit. Yet a simple analysis of the numbers shows a plan that will impose enormous new spending obligations on future generations, driving up the deficit over the next decade and shackling our nation more tightly to foreign creditors.
Democrats claim their plan will save $87 billion over the next decade by eliminating the FFEL program and originating all loans through the federal treasury. The claim is suspect on many fronts. First, these supposed savings are in large measure actually new earnings the federal government will take in from student loan borrowers paying the government a higher interest rate than the government’s cost of funds. Moreover, cost projections for the student loan programs — both of them — are notoriously unreliable, with congressional and executive branch budget experts regularly revising their estimates based on interest rate fluctuations, default swings and other factors. In other words, the notion of $87 billion in savings is little more than a guess — and a shaky one at that.
Of course, in Washington lawmakers are able to play by different rules than the American people. Democrats will not be waiting for this $87 billion to actually materialize — instead, they are going on an immediate entitlement program spending spree, loading up the federal charge card and hoping the money will be there when it comes time to pay the bill.
H.R. 3221 spends approximately $80 billion of the supposed savings generated by the plan to crowd out the private sector, doling out billions for projects that range from early childhood programs to school construction to online course development. The legislation sets aside enough funding to cover some of these programs’ expenses for just five years, leaving open the likelihood that Congress will have to allocate more spending — paid for by cuts to other programs or increased taxes — in just a few short years.
The plan also invests heavily in Pell Grants — a program that has received bipartisan support over the years as the foundation of our efforts to expand college access for low-income students. However, a recent analysis from the nonpartisan Congressional Budget Office found Democrats’ proposed expansion of the program would cost $11.4 billion more than originally projected.
That’s not the only cost H.R. 3221 is hiding. CBO notes the proposal will actually increase so-called discretionary spending — the amount appropriated by Congress in its annual spending bills — by $13.5 billion. And when market risk is taken into account, the $87 billion in purported savings plummets by $33 billion.
Add these numbers together and you find a plan that does not save $8 billion, as its advocates claim, but rather spends $50 billion more than if Congress did nothing at all. And somehow, this all takes place under the guise of fiscal responsibility.
Students and schools lose the choice, competition, and innovation of the private sector.
Taxpayers are saddled with $50 billion in new costs. The only clear winner appears to be the federal government, with its size and power expanded — and cemented — because a public “option” grew into another government takeover.
It’s time to hit the brakes. Rather than frantically rushing to enact a proposal before the costs and consequences are fully understood, Democrats should join Republicans in our plan to commission a comprehensive study about the future of student lending. We can extend a program that works today — in the process, putting billions toward deficit reduction — while finding a long-term solution that will benefit students, schools and taxpayers alike.
Kline is the ranking Republican on the House Committee on Education and Labor.