Several weeks ago, I wrote about the Student Aid and Fiscal Responsibility Act. There still hasn’t been much discussion about the bill, so I thought I’d give some more details about the damage it could cause if passed by Congress.
According to a recent Wall Street Journal article, the plan calls for the U.S. Department of Education to move from its current 20% share of the student-loan origination market to 80%. Once this occurs, private lenders will be barred from making government-guaranteed loans, and the remaining 20% of the market that would remain private will most likely shrink as lenders try to comply with new government regulations.
Beginning in July of next year, taxpayers will pay $100 billion a year to lend to students.
Several college administrators have sent a letter requesting they be given a longer transition period to this “public option.” They don’t think the government will be able to make the transition in just eight months time.
Supporters of the bill claim it will save $87 billion by cutting out private middlemen. However, the director of the Congressional Budget Office thinks these savings estimates are inaccurate.
According to the Wall Street Journal article, “the statutory methodology ‘does not include the cost to the government stemming from the risk that the cash flows may be less than the amount projected (that is, that defaults could be higher than projected).'” Also, “the government’s accounting system is specifically skewed to make direct loans from the government appear to cost much less than guaranteed loans made by private lenders… the real ‘savings’ are only $47 billion, even though, in a deception that would be criminal fraud if it weren’t mandated by Congress, the official estimate remains at $80 billion.”
The bill is expected to pass the U.S. House. The only chance that it will be stopped lies with the U.S. Senate.
If it passes, parents will be forced to use a Washington bureaucracy to borrow money for their college-bound children, and taxpayers will pay a fortune to send those children to college.
– Elizabeth Young