Sallie Mae Thinks $17 Billion a Year in Giveaways to Banks is a Good Job-Creation Program
As I’ve had occasion to mention in the past, many legislators, including Representative Buck McKeon (R-CA) and Senator Judd Gregg (R-NH) have developed the curious notion that the essence of the free market is wasteful crony capitalist giveaways to private sector student lenders. That’s why they’re opposing an Obama administration initiative to end subsidies to private lenders and just lend the money directly, instead.
Today’s New York Times has an article on the lobbying frenzy that’s under way as private lenders try to keep their ill-gotten gains. It seems that Sallie Mae has put forth a compromise position that they say would achieve 82 percent of the cost savings of Obama’s plan. Sallie Mae’s estimates seem likely to prove unduly favorable to Sallie Mae, but even if the estimates are accurate we’re still talking about $17 billion in pure waste. The Times writes that “Lenders are also emphasizing the jobs they provide.” And, indeed, it would be remarkable if that $17 billion wasn’t employing anyone. But if you gave it to students, it could send an extra 500,000 kids to college for free each year and that would create jobs as well.
in addition to jobs, the waste is also suppose to produce valuable competition. But the direct lending program already contains competition for the contracts to administer the program. The competition the private lenders engage in is competition for the favor of college financial aid offices, a form of competition that fails to produce cost-savings—Sallie Mae concedes that even under their compromise there’ll still be billions in waste—but does produce lots of scandals:
When we discovered that several financial aid directors at major universities and a Department of Education official owned and sold a significant amount of student loan company stock, we became suspicious. Our subsequent investigation and those of others revealed a series of payoffs, kickbacks, and luxury gifts to aid officials, thus compromising college-student relationships. Supposedly impartial intermediaries in the federal financial aid system were operating with substantial personal conflicts of interest.
This page contains information about our investigation and the fallout in the financial aid world, including 10 firings and resignations, hundreds of settlements with state Attorney Generals, and new federal legislation.
Meanwhile, when Republicans were in charge neither they nor the private lenders showed much interest in competition. Rather, like all businesses everywhere they were trying to eliminate the competition by getting congress to undermine or eliminate the cheaper, more efficient direct loan program. Now the administration is, sensibly, trying to do the reverse. Unfortunately, in addition to its friends in the GOP, private student lenders seem to be an important force in Nebraska, home of oft-wavering Senator Ben Nelson, and Sallie Mae is staffing up with Democratic lobbyists and “has hired two prominent lobbyists, Tony Podesta, whose brother, John, led the Obama transition, and Jamie S. Gorelick, a former deputy attorney general in the Clinton administration.”
22 Responses to “Sallie Mae Thinks $17 Billion a Year in Giveaways to Banks is a Good Job-Creation Program”
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April 13th, 2009 at 1:49 pm
C’mon, Matt. Everybody knows that eliminating private sector middleman/plutocrats who add no value and screw the taxpyapers would quickly put us on the fast track to socialism.
April 13th, 2009 at 1:50 pm
Almost certainly more jobs…a lot more. The student-loan application and administration process is heavily automated, but as MY as noted before, college teaching is rather hard to automate.
April 13th, 2009 at 1:54 pm
Say it ain’t so Tony!
April 13th, 2009 at 1:56 pm
Ohhhhh, calling out Tony Podesta? Your boss can’t like that.
How much money does that scumbag need anyway?
April 13th, 2009 at 2:11 pm
I doubt 500k more students would generate many more teaching jobs, at least ones of value. Adjuncts making 3k a course are not going to jumpstart our economy. Of course, it will sustain the bloated salaries of a whole lot of administrators.
April 13th, 2009 at 2:15 pm
Very nice, but doesn’t address the slow drift over the years from financial aid packages that used to be 70% grant/30% loan to the reverse.
April 13th, 2009 at 2:18 pm
No worse than 500 Billion to bullshit public employees to maintain the status quo
April 13th, 2009 at 2:33 pm
Republicans will stop at nothing to stop any progress on any Education front. They must. The long range survival of the GOP depends on it.
Future demographics are not looking good for the GOP. Their last hope is to create the single stupidest nation on the face of the planet. Stupid people are more easily swayed to vote against there own interests, and vote GOP.
Yes, Republicans despise the Free Market and prefer the cozy confines of crony Capitalism. No news there. Does anybody like competition? Hell no!
But let’s give the GOP some credit. It is not just about money all the time. There are a higher principles involved for Republicans on education matters. Survival!
April 13th, 2009 at 2:34 pm
Well, Al, here is your formula:
change in income (equivalent to GDP)=change in government spending* 1/1- marginal propensity of consumption(1-original income tax)+ marginal propensity to import
Work it out, I’m sure there is a way to put those numbers together to make it look like gauging students has a stimulative effect.
April 13th, 2009 at 2:36 pm
We always hear that the private sector is more efficient at delivery of goods and services. At least in terms of student loans and the military, I call bulls***.
April 13th, 2009 at 2:43 pm
It seems that Sallie Mae has put forth a compromise position that they say would achieve 82 percent of the cost savings of Obama’s plan.
So their compromise position is “like the Obama plan, but worse.” Then why not just achieve 100% of the cost savings of Obama’s plan by adopting, you know, Obama’s plan?
April 13th, 2009 at 2:44 pm
Matt, it would be great if you would let the dip shits over at Huffington post know that we aren’t in a free market right now.
April 13th, 2009 at 4:05 pm
@12: “Then why not just achieve 100% of the cost savings of Obama’s plan by adopting, you know, Obama’s plan?”
That would defeat the whole purpose of crony Capitalism.
You are proposing efficiency in planning. Clearly, you are not a loyal member of the GOP.
April 13th, 2009 at 5:04 pm
The wall Street Barons and the knuckle draggers have a common interest in keeping kids out of college. You don’t want them kids to know too much. Keep college for the children of the rich
April 13th, 2009 at 5:47 pm
So, in order to keep businesses like Sallie Mae raking in lots of profits, we sacrifice the young. No….I don’t think so. It is time for common sense to prevail. Our young are not available anymore for sacrifice (thanks Congress for giving them to the wolves) – make your money some other way. Don’t let Sallie Mae do the bait and switch tactic of pretending to care about our jobs while screwing our young. No….no thanks Sallie Mae. You have the reputation you deserve and the wise will not be fooled anymore – fancy lobbyists or no fancy lobbyists.
April 14th, 2009 at 12:49 am
I hate to belabor the obvious, but is now really the time to push private money out of the economy and replace it with public money, the borrowing of which pushes us closer to the day when China and OPEC finally cut us off?
April 14th, 2009 at 1:55 am
I hate to belabor the obvious, but is now really the time to push private money out of the economy and replace it with public money….
Larry, private money withdrew from the economy when opportunities for profitable investment became scarce/nonexistent. Nothing pushed it – it left of its own free will and accord, as private money is wont to do as it goes about its carefree life seeking maximum returns, which right now are to be had sitting around invested in anything backed by the full faith and credit of the U.S. government, watching TV and drinking beer.
It’s certainly not abroad in the economy, putting people to work – haven’t you heard there’s a recession on?
April 14th, 2009 at 4:09 am
@ano – Yes, some private money freaked and split. But Sallie Mae’s funding didn’t disappear. The Obama administration’s move here has nothing to do with the lack of available funds and everything to do with “government can do it better, no matter what it costs”.
If private money leaves student loans, government gets to make up the shortfall. In that case, what else is government not funding? Or is government money available in infinite amounts?
April 14th, 2009 at 7:16 am
There’s a genuine philosophical question here: every time we want to subsidize something, do we think the government should take over the market? For example, right now the government, through Freddie/Fannie, subsidize mortgages by buying them up from the originators. But surely the government could make more profit by just originating them all itself and cutting out the banks entirely?
This is almost a perfect analogy for what’s being proposed in the student aid market. I don’t think even those of us on the left these days are all that hot on the government’s taking over entire markets. That doesn’t mean I advocate keeping the guaranteed student loan program as is, or even that I’m necessarily opposed to this change, but I do think the real questions should be considered and debated, rather than some straw man. The question is not ‘do we love waste’, it’s ’should the government take over entire markets in order to subsidize a particular outcome’.