Alexander Warns That Student Loan Reform Will Make Getting A Loan Like Going To The DMV

Last year, the House passed the the Student Aid and Fiscal Responsibility Act (SAFRA), which is a bill removing the senseless subsidies and risk-protection that the federal government gives to private student loan companies. But like so many other legislative efforts, this one has bogged down in the Senate. The lenders, led by Sallie Mae, have launched a furious lobbying campaign to protect their federal dollars, spending millions to influence lawmakers and public opinion.

One of the loan industry’s staunchest defenders has been Sen. Lamar Alexander (R-TN), who has said that “it makes no sense” for the government to stop giving what is essentially free money to the lenders. And yesterday, the Washington Post published an op-ed by Alexander chock full of nonsense about SAFRA and its implications:

While health-care reform occupies the spotlight, the Obama administration is pushing for another Washington takeover — this time of the student loan system…Starting in July, all 19 million students who want government-backed loans will line up at offices designated by the U.S. Education Department. Gone will be the days when students and their colleges picked the lender that best fit their needs; instead, a federal bureaucrat will make that choice for every student in America based on still-unclear guidelines…The government should disclose that getting your student loan will become about as enjoyable as going to the Department of Motor Vehicles.

Alexander also claims that the plan means students will “work longer to pay off your student loan to help pay for someone else’s education.”

The op-ed has plenty of scaremongering about Washington takeovers and long lines for student loans, but it doesn’t acknowledge the simple fact that the government already makes millions of loans every year, in a process that does not look anything like waiting in line at the DMV. In fact, under SAFRA, student loan companies will still service and administer the loans, they just won’t take federal money and originate them. That money, instead of going to the compensation, advertising, and overhead of private companies, will be reinvested in Pell Grants and other education initiatives.

Second, as The Quick and the Ed’s Kevin Carey pointed out, Alexander’s point about working longer to pay for someone else’s education amounts to “making things up”:

Alexander’s contention that “you’ll work longer to pay off your student loan to help pay for someone else’s education” ignores the fact that many borrowers also receive Pell grants. Or attend the colleges that will receive grants to improve graduation rates, or have small children who will benefit from new investments in early childhood education. Alexander concedes that most people think such programs are a good idea.

Finally, Alexander claims that SAFRA should be scrapped because, if you use a different accounting method than that the Congressional Budget Office employed to find savings of more than $80 billion, SAFRA would save only $47 billion. As if preventing $47 billion in direct subsidies for private companies to do what the government can do just as well isn’t worth his time. Congress is reportedly examining passing SAFRA through the budget reconciliation process along with health care reform.