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Looking back on the year, I believe that the best victory for progressives was student loan reform, which was passed as part of the reconciliation measure. While not as large in scale as some of the bills passed by this Congress, it still was a substantial measure that ends over $60 billion in government waste.
What makes this victory the most important from my perspective is that it is the closest to a truly uncompromised progressive victory that we have seen in the last two years. This was a simple battle of the working class against massive corporate interests where regular Americans finally came out the victors.
On multiple levels, this provision achieved several of what I consider to be some of the most important defining principles of old school progressivism:
- Ending massive corporate welfare- It stopped a completely wasteful program that had the government guarantee “private” loans. This had allowed several large businesses – including Bank of America, Wells Fargo and Wachovia – to make huge profits at the expense of the public.
- Reducing corruption – Eliminating corporate welfare is always a small step toward ending political corruption in Washington. It helps stop the endless cycle of companies needing to spend millions on lobbying to keep their billions in government handouts flowing.
- Good stewardship of public funds – It took a government task and made it more cost-efficient. Building trust in government’s social safety net requires progressives to make sure that the government is the best possible steward of public funds that it can be.
- Sharing prosperity- Much of the money saved by ending this corporate welfare now is going to be re-purposed to fund Pell Grants that help low income students obtain higher education.
- Providing greater opportunity- Progressives should be about more than just providing a safety net to those in trouble, we also should provide ladders to enable individuals to achieve greater success for themselves. There is no better tool than education to do that.
- Investment in our future – Increasing the general availability of eduction for Americans and providing more people with opportunity to achieve greater success will, in the long run, improve our nation’s future.
A brief history of the problem
The Federal Family Education Loan Program (FFEL) was a classic lemon socialism program. It provided a nearly total government guarantee for “private” student loans. If the loans did well, the large financial companies got the profit, if they didn’t preform, the government socialized the loses. These broken incentives spurred risky behavior from the companies.
President Clinton took a step to reduce this problem by giving students the option to cut out these totally unnecessary and wasteful middlemen to get loans directly from the government through the William D. Ford Federal Direct Loan program. Over the years, this “public option” proved to be superior and dramatically cheaper for the government.
As if FFEL weren’t already a horrible enough corporate welfare program, the market for resale of FFEL loans dried up during the financial meltdown. So, in 2008 Congress passed a multi-billion dollar bailout of the program that made the government the buyer of last resort for these “private” loans the government could just as easily have made directly to the students for much less.
Passage of student loan reform
Much to his credit, President Obama saw what a horrible boondoggle this was and pushed reform that would totally eliminate the FFEL and use the savings to increase Pell Grants. He made sure provisions for student loan reform were included in the reconciliation instruction because there was no way to get 60 Senate votes for ending the FFEL.
Despite Obama’s support for the general idea, its passage was not assured because his administration was more concerned about using reconciliation to pass health care reform. This created room for lobbyists to push for “compromise” that would cost the government dearly or even completely kill reform this year.
With the focus on health care reform, student loan reform was almost dropped entirely from the reconciliation bill, but thanks in part to public pressure, in the end it was included without any major carve-outs by the bank lobbyists. This was a rare total loss for lobbyists fighting against the public.
While it is unfortunate that Democrats decided to use some of the savings from ending FFEL to pay for changes in the health care law instead of investments in education, the result was still elimination of a horrible corporate welfare program with much of the savings reinvested in smart progressive projects. On an economic front, it was one of the few totally progressive long-term achievements for Democrats in a year otherwise dramatically tainted by massive corporate carve-outs.
I’m proud of the role FDL played when our “Students, Not Banks” campaign helped make sure uncompromised student loan reform was passed this year. I also think President Obama, along with Rep. George Miller (D-CA), deserves a lot of credit for this great achievement. This was a case of Obama actually fighting directly against corrupt corporate “stakeholders” instead of trying to compromise with them. Better still, he directly fought against corporate interests to help regular Americans. Looking back at the year, I wish progressives had been given the chance to have more clear fights like this one.
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Good morning!
I’m looking forward to hearing new voices tackling this next Republican House and the crazy policies which will surely emerge, given the infusion of a Teabagging Aqua Buddhist and his cohort.
Yes this is good, but it’s not great. I say this as a recently-graduated grad student who has dealt with the student loan system over the last 10 years, and recently took a look at the fine print at the federal Direct Loans agency.
What progressives need to remember is that college students took a real hit in 2006 when federal legislation raised the cap on interest rates for subsidized student loans from 4.75 percent to 6.8 percent. This is a sizable difference when you are talking about paying off 30-50k in student loans over 15-25 years. I was able to consolidate and lock in the 4.75 rate in 2006, but from that time forward students are dealing with the 6.8 percent rate. Nothing about the recent loan reform legislation changes this rate. Yes, it is good to see the federal government using its money wisely, and good to see the private lenders get the boot that they deserve, but the deal for students is essentially the same: rising tuition and living expenses; decreasing grant and fellowship aid; and expensive loans.
Did you see any other organizations going to bat for today’s students and making a difference?
Great post, Jon. But Jamesb seems right to point out that the interest rate, if still at 6.8%, is higher than some car loans. When I went to school, interest rates for a student loan were at or around 3.5%. It seems without the profit motive that the rate could be lowered to closer to what students can afford in the years following a major recession. If the Fed can subsidize the TBTF banks, why shouldn’t our society use it’s tax dollars to subsidize our future, that is, our younger generation’s education. It seems the least we can do, since many other countries provide for college for free for their youthful citizens.
Jamesb is right about interest rates. Grad student loans pay 6.8%. Undergrad loans are at 4.5% for direct subsidized loans this year and 3.4% for next year. It is at 6.8% for direct unsubsidized loans. Link.
That rate might be a good target for future work, but it doesn’t detract from Jon’s argument about the good work done to take the unneeded middlebank out of the system.
Good question Rayne, for which there is no easy answer. The cost of good financial aid–grants and low interest loans–is exceedingly high. The federal government spends more on financial aid (roughly 100B per year in grants and loans) than all of the states combined, and thus it is very important to students to get a good deal from the federal government. Increasing the size of the Pell Grant and guaranteeing its availability to all students who apply for it should be an ongoing priority for progressives. Restoring student loan interest rates to the low rate that Ann mentions (I have one small loan from 2001 at 2.7 percent) should be another priority. On the supply side, though, the action is all at the state level. Students have seen above-inflation-rate increases in tuition for the last 20 years, and there is no sign of this trend abating. Some of the state programs that guarantee students a college education for meeting certain requirements during high school are benefiting some low-income college students, but there is a need for more of these programs, and for efforts to make sure that they don’t exclude students coming from under-resourced high schools.
So basically you’re saying we still have plenty of work to do.
All the more reason we need to support the kinds of folks who’ll make a difference.
And who might that be at this point? Just asking.
It took billions being skimmed off by middlemen (Sallie Mae, Citi, Wachovia) and made it available in the form of student loans and grants (specifically Pell grants) instead. It also gave several billion to community colleges who were in desperate need in order to keep teachers employed and programs available, without which community college students couldn’t complete their degrees.
I think what you mean is it’s not great for “graduates.” Which is true. We didn’t write the bill, we just worked to get it passed — it was an either/or situation. And I”m sure that people who will get loans, grants and courses that would not have been available otherwise are pretty happy about its passage.
And ultimately, it will help graduates in that the loans are coming through the government and not companies like Sallie Mae who have incentives to jack up fee totals before selling them back in default to the government. That’s how people wound up owing twice the amount of the actual loans in a very short. It doesn’t do anything for people who are stuck in that system now, but future grads will definitely benefit.
I agree with all this and the major thrust of Jon’s post, especially since he notes that it was “unfortunate that Democrats decided to use some of the savings from ending FFEL to pay for changes in the health care law instead of investments in education.” And I admire FDL’s efforts greatly.
But IIRC, student loan reform was held hostage to health care reform for almost a year. It could have been had much sooner with far greater savings and gain to the Pell program. We came VERY close to losing it. IIRC, it was the need to pass HCR through reconciliation — something Obama swore he wouldn’t do from the beginning — that made student loan reform a late imperative.
I would also note that it bore some similarity to the PO — wildly popular AND saved money — two advantages that were never used in HCR.
But enough quibbling, all close enough for government work and definitely a progressive victory.
Another area we might focus on is tighter regulations about which “colleges” and courses are eligible for student loan support. There have been lots of stories about private, for-profit colleges engaging in fraudulent recruitment of people they know are unlikely to finish or succeed later, but cashing in for now on the subsidized loans for tuition payments. It’s a multibillion dollar scam. It pays George Will’s salary. DoE has proposed regulations to tighten eligibility, to try to link it to some performance measure, but the private, for-profit education investors are strongly resisting.
The reforms helped take the private lenders out of the scam, but the private “educators” are still there. That’s the next battle. As always, follow the money.
And speaking of follow the money, here’s Jane’s favorite — “who’s paying you to be here, Lanny?” — money chaser:
http://www.nytimes.com/2010/12/31/world/31davis.html?_r=1
There are tv ads here now featuring a nurse/medical office tech who got a job after her husband got laid off, in order to support their family. She appears to have got her credential through one of the many for-profit educational institutions that thinks it’s threatened by the state of Washington’s intent to hold schools to higher standards of after-credential employment.
It’s horrible to be sold a bill of goods in the form of a credential, told you’re practically guaranteed a high-pay-sounding paraprofessional employment, and then finish the program deep in debt — only to learn you’re not really employable.
Jon’s right — this was as pure a progressive victory as any we’ve gotten from this Congress, especially since it comes with an easily written Phase II to cap interest rates and regulate the for-profit scammers. But there’s no doubt this is the best three-quarters loaf of the this Congress. And we’re used to knowing there’s more to do, right? It wouldn’t be a progressive victory without another chapter needing to be written!
Support the FDL Writer’s Foundation, please. It’s how we’ll engage activists around this and many other issues in the years ahead.
I think there is something in the reforms that allow people to take their FFEL loans and consolidate them into a Direct Loan. If more and more student debtors do this, it would create a constituency for fundamental fairness in the Direct Loan program (i.e. everyone pay the same low rate of interest and everyone receive the 10-year forgiveness like public workers get.)
There are a slew of people with bona fide private student loans (not government subsidized). They can’t get around these, and they can’t go bankrupt on them (like one can on a mortgage). The best program for them would be a tax on endowments above $1 billion to fund a TARP, and maybe a rewrite of the BCY rules.
Sallie Mae was permitted to get away with writing higher education funding policy in America for over 30 years, but none of the executives were ever hauled before Congress for questioning. Surely, that won’t happen now with a Republican House, either.
Forgive me for not trusting a government agency with consumer finance but after what Fannie and Freddie and Ginnie have done, I don’t trust Sallie.
That’s another thing: Sallie was privatized in the 1990′s. People think it’s the government, but it’s really a private company which was receiving massive government subsidies and a backstop.