More thoughts on student loans

I got an interesting and difficult qustion in the form of a comment on my last student loan program posting: Can the private student loan program survive a Democratic Congress and a Democrat in the White House?

This is hardly an idle question. Both Obama and Clinton have made statements announcing their intent to abolish the FFELP if elected. And because the industry has been a significant giver to Republican candidates over the past dozen of so years and a meager giver to D's (in part responding to threats from the K Street project, and in part because of legitimate policy agreements), there is not much sympathy from the majority party on the Hill right now.

I strongly believe that the FFELP is extremely important and needs to be saved (please see my full disclosure in my previous post) for several reasons. First, I do not believe that acting as a lender is either an appropriate role for government agencies, or that they are particularly good at it. Think Veterans Administration, USDA, etc. Second, I also believe that competition which can only come with private lenders has brought valuable innovation and better services to universities and students. And third, I believe that universities only have leverage to demand better services and innovation when there is a competitive market, and if that is taken away, then so is any role that the schools have in demanding better programs.

Having said that, the FFELP and its private lenders are in trouble. Their traditional way of defending their program, relying on inside-the-beltway lobbyists and their friends on the Repbulican side of the isle, failed to even slow down this year's legislative cuts. If the FFELP community (it has many non-profit members, hence the term "community" rather than "industry") cannot enlist those most affected by the recent as well as future cuts to the program-- such as students and their parents and the schools and universities-- they will be in for tough times indeed.

I have recommended to the FFELP community that they take a broad-based campaign approach, educating and recruiting those who will be really hit hard by further program cuts to speak up to members of Congress before the next president is inaugurated. They need to start the campaign now, and it needs to be aggressive. Otherwise, they may not be around too much longer.