Student Loan Industry Nationalization Tacked onto Health Bill

Did you know that? I didn't, although I reported on the student loan nationalization in my past blog posts.

Starting July 1st, anyone who wants federal student loans will have to deal directly with the federal government. (Good luck with that.) It is of course touted as reducing deficit and wasteful subsidies. (Here I thought deficit and wasteful subsidies are two hallmarks of the government.)

Goodies buried in this government takeover includes:

"New borrowers who assume loans after July 1, 2014, will be able to cap their student loan repayments at 10 percent of their discretionary income and, if they keep up with their payments over time, will have the balance forgiven after 20 years."

But wait! There's more. If the borrowers find employment in the public sectors, the balance will be forgiven after only 10 years!

And of course there's much more for institutions that cater to "minorities" - $2.55 billion more.

You can read all about it in the White House statement. If you are brave, you can dig into the health care bill itself (H.R.3590). (Good luck.)

It looks to me like this is another job bill - take away the jobs from private industry and shift them to the government. The government only takes away, but gives you an illusion that it creates.

So, Americans who will be forced to buy health insurance and to pay added taxes for medical products and services with the threat of fine and jail time will also be paying for the student loans that will be forgiven by the government.

Do you wonder what else is buried in that monstrosity of the health care insurance "reform" bill? If you don't, you should.

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Rejoyce! Your Student Loan Will Be Forgiven!

In case you missed it, the Obama government plans to effectively take over the student loan industry. "The Student Aid and Fiscal Responsibility Act" (H.R. 3221) already passed the House (apparently no one was paying attention amid the health care bill debate), and right now it is in the Senate. The Senate Democrats are considering passing it during the budget reconciliation process.

So it comes as no surprise that the Loan Administrator in Chief may be announcing measures in tonight's State of the Union address that will forgive the student loan debt, with preferential treatment for the government employees of course. This is all to save the middle class, of course.
State of the Union: Cutting monthly student loan payment would be big help to graduates (1/27/2010 The Florida Times Union)

"Another major component of the president’s bid to re-energize a flagging middle class is to overhaul the student-loan process and make college more accessible to more people.

"He proposed instituting a cap on student loan payments for people carrying massive debt. Payments will be limited to 10 percent of income. Obama also said the program will forgive remaining debt after 10 years of payment for public-service workers and 20 years for everyone else." [Emphasis is mine. The article continues.]

What the heck. I am all for Obama to own everything. He should take over the credit card industry, and declare that all the credit card debt will be forgiven after 10 years of paying them at no more than 10% of one's monthly income. To expedite the "recovery", cut those years to 2 years, just in time for the next presidential election.

While we're at it, since the government practically owns half of U.S. residential mortgages, how about forgiveness on mortgage debt, after, say 10 years of payment?

Easy availability of student loans distort the market mechanism. Instead of valuing the time and money that you would have to spend getting the degree against the future potential value derived from having that degree (an economic decision), you can go to college, major in anything you want because you have the student loan and don't need to worry about paying back for some time. This inflates the cost of education. Schools have little incentives to lower the costs, and students have little incentives to do comparison shopping as they would if they were spending their own money.

Now the president is going to tell you you don't even need to pay back. The cost of education is now guaranteed to go up further, as cheap money (i.e. loans that don't need to be fully repaid) bid up the price of goods (in this case, education).

(HT: W.C. Varones Blog)

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Student Loans Get Nationalized

Everyday, I wish the power grab by the federal government and/or this administration would miraculously stop. No such luck.

The government is already the biggest mortgage lender (FHA, Fannie Mae, Freddie Mac, Ginnie Mae); it owns two of the three domestic auto companies (GM and Chrysler); it owns a diversified insurance company (AIG); it still owns a significant chunk of nation's financial firms (including Citigroup, whose share price plummeted earlier this week on a rumor that the government is planning to dump 1/3 of Citi holdings as early as October).

Now it is set to own the student loan industry.

House Passes Sweeping Student-Loan-Market Overhaul
(7/17/09 Wall Street Journal) [emphasis is mine]

"WASHINGTON -- The House of Representatives approved legislation Thursday that would effectively end private-lender involvement in the student-loan market, establishing the federal government as the sole provider of college loans.

"The bill introduces sweeping changes to the U.S. higher-education system and serves as the third central plank of President Barack Obama's domestic agenda.

[The third central plank of Obama's agenda? HOW MANY PLANKS ARE THERE?]

"Similar to the continuing efforts at overhauling health care, the changes to the federal government's higher-education policies would have a serious effect on the bottom line for private-sector players currently serving the marketplace.

"The House vote was 253-to-171, largely along party lines.

"Under the legislation, all lenders would be cut out of the market for originating loans. There would still be a role for private banks and lenders to bid for a limited number of contracts to service the loans after they are made by the government."

Goodbye, Sallie Mae (SLM). Effective nationalization of the student loan market is ostensibly to save money by cutting the fees that the government pays to private lenders. Private lenders will be allowed bid to service a small portion of loans after the government originate them.

"The nonpartisan Congressional Budget Office said that ending fees paid to private lenders would save the taxpayer $87 billion over the next decade.

"An alternative proposal floated by a group of lenders including Sallie Mae would realize the same level of savings, the CBO said."

$87 billion in fees saved over a decade. $8.7 billion a year. This government is issuing debt to the tune of $1 trillion a year. $8.7 billion is a scant 0.87% of new debt each year. Would you call this a saving?

In order to function as the sole lender of college loans, the government will need to hire a lot of people, put in the IT infra that actually works. But the government is confident that it can handle:

"Having lined up additional contractors to handle the anticipated increase in direct-loan volume, federal officials say they are prepared. Absent an unanticipated breakdown in the system, industry observers say borrowers are unlikely to notice the shift."

We recently witnessed how efficient the government system was when the government played a role of one gigantic dealership to the whole nation. The computer system for the cash for clunkers program suffered numerous system breakdowns, and dealers still haven't gotten all their money due from the government.

I have this feeling that the so-called saving will be used for setting up a new federal student loan agency. The burden will be on the schools who will be forced to change their system to accommodate this federal college loan behemoth.

Under the House bill, the savings "would use the anticipated savings to increase grants for low-income students and boost funding for minority students." (From my limited experience with the local community college and state university, that's where most of the money is going already anyway.)

The government has taken over huge part of housing, banking, transportation, and insurance. And now, if you need a loan to send your kids to college, you will go to the federal government.

Soon, they will own the health care industry entirely (they already own a huge chunk) or at least they will try to, with the threat of "racism" and "civil unrest" against anyone who dare opposes.

If the government get their hands on the consumer staples industry somehow, then all the life's needs will be provided by the government. (Oh wait, what country is this? North Korea?) You can be assured that one of the consumer staples, food, will be more heavily controlled sooner or later by the government under Obama's Food Czar who happens to be an ex-executive of Monsanto, of genetically modified crop fame.

We will also find out soon enough if they will successfully grab the Internet and radio stations. (They are already trying.)

Brave new world.

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