"The Quietest Trillion; Congratulations. You're about to own $100 billion a year in student loans."
The furor over President Obama's trillion-dollar restructuring of American health care has left his other trillion-dollar plan starved for attention. That's how much the federal balance sheet will expand over the next decade if Mr. Obama can convince Congress to approve his pending takeover of the student-loan market.
The Obama plan calls for the U.S. Department of Education to move from its current 20% share of the student-loan origination market to 80% on July 1, 2010, when private lenders will be barred from making government-guaranteed loans. The remaining 20% of the market that is now completely private will likely shrink further as lenders try to comply with regulations Congress created last year. Starting next summer, taxpayers will have to put up roughly $100 billion per year to lend to students.
***
For decades, loans carrying a federal guarantee have been the most common way of borrowing for college. After raising money in the private capital markets, lenders made the loans, paying a fee to the government for each one. The government covered most of the cost of defaults while allowing the private lenders to make a regulated return.
The system broke down after Congress in 2007 legislated a return so low that no private lenders could make money holding these assets. To keep the money flowing to student borrowers, the government began buying the loans from private originators last year. But this larger federal role was intended to be temporary, with an expiration date next summer.The news from Washington now is that rather than scaling back federal involvement, the pols want the U.S. Department of Education to be the exclusive banker to America's college students....
It's not a popular idea on campus. Loans directly from the feds have been available for decades, but the government's poor customer service has resulted in most borrowers choosing private lenders.
If the feds are now making and owning all such loans, expect default rates to soar. When the government hires contractors to collect on its loans, it pays them for simply calling the borrower, regardless of the result. Private lenders, on the other hand, make money from a performing loan and have a greater incentive to do careful underwriting and aggressive collection....
All of this is certain to pass the House, and the only chance for stopping it is in the Senate. If it passes, parents will soon have no choice beyond a Washington bureaucracy to borrow money for their college-bound children, and taxpayers will pay a fortune for the privilege.
DP: Read the entire article and remember that Obama wants to nationalize or control all, repeat all, the banking because that gives him control over everything:
http://online.wsj.com/article/SB10001424052970203440104574405154157021052.html
No comments:
Post a Comment