Thursday, September 17, 2009

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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