Why The Administration Wants To Nationalize Student Loans

The Obama administration made it pretty clear yesterday that they do indeed intend to take over the student loan market. That’s not a big surprise but the language they used to make their case was revealing.

Robert Shireman, a deputy undersecretary of the Department of Education had this to say to the House Education and Labor Committee:

“Instead of maintaining this elaborate web of programs designed to prop up the [Federal Family Education Loan] Program, we should originate 100% of new loans through the less costly Direct Loan program,” said Robert Shireman, deputy undersecretary of the Department of Education, at the hearing of the House Education and Labor Committee.

The administration’s proposal would minimize the layers between the source of loan capital and the borrower, he said. Shireman added that the recent credit crunch points to the private market’s unreliability, and that “reliable access” to loans is important for students and the economy as a whole.

“We have seen the guaranteed federal student loan system, known as the Federal Family Education Loan Program, come close to collapse this past year.” Shireman said. “Repeated interventions by the Congress and the department were required to ensure that every student and parent who needed a federal student loan received one…As for capital acquisition for federal student loans, it is clear that the federal government is now the sole reliable and sufficient source of federal student loan capital.”

There are a couple of things in his statement that struck me. First, I guess we truly have moved into a new reality when the argument is made that government can do it more efficiently than the private sector. I’ve seen lots of arguments tortuously constructed to justify government doing something in lieu of the private sector but asserting that government is more efficient is not one I’ve ever seen even the most committed government activist make.

Second, the guy seems to have pretty much written off the private financial system as a reliable provider of credit. It’s certainly true that the student loan business cratered along with just about every other sector of the credit markets last year. I guess that Mr. Shireman views the credit crisis as an event that has permanently rendered the financial system unstable. I trust he has shared these views with Treasury Secretary Geithner and I hope that Bernanke takes note and stops wasting his time using TALF to prop up the student loan market.

I suspect that all of this has much more to do with the administrations plans for education than it does with credit markets. Self-serving comments like these just get under my skin.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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