Something called the Student Aid and Fiscal Responsibility Act (SAFRA) zipped through the House Committee on Education and Labor recently.
Odds are you haven't heard much about it, maybe because of the deafening health care clamor, but it would do something pretty big, ending the 44-year-old Federal Family Education Loan (FFEL) program--which uses federal bucks to back tens of billions of dollars of student loans from private lenders--and replacing it with lending straight from Uncle Sam. In other words, it would destroy what little chance there was of student loans being constrained at all by economic realities.
"First, we saw a drive toward complete government takeover of our nation's health care system," lamented ranking Education and Labor Committee member Rep. John Kline, R-Minn., during deliberation over the bill. "Now, we see government seizing control of student lending, forcing the private sector out and welcoming in a mountain of public debt."
Contrary to what Kline suggests, guaranteed lending is about as close to a free market as a biplane is to the Starship Enterprise. Under FFEL, Washington guarantees lenders--including Fannie's cousin, Sallie--a profit on student loans, reimbursing them almost completely on defaults and paying big subsidies. Making matters worse, legislation was enacted last year that lets the feds more or less directly finance FFEL loans if lenders can't access sufficient funds through private capital markets. READ MORE
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