Thursday, September 06, 2012

Student Loans: Dems vs. GOP Made Easy

cross-posted from Dagblog

One thing that Barack Obama has done absolutely right for education is change the student loan program. Romney and Ryan have made it clear that if elected they will switch things back to the old way. This small policy difference demonstrates the larger difference between today's Democrats and Republicans.

Under the old system, college students took government-backed loans from private banks. When they graduated, they paid back the loan, with interest, to the bank. If they defaulted, the government, and you as a taxpayer, ate the loss and paid back the bank. This means 1) the bankers made all the profits and 2) the taxpayers took all the losses. It was obvious even to me, as an eighteen-year-old kid starting college back in the day, that this is a straight government handout to the bankers. It was like the bank bailout except it happened every day with smaller transactions.

When Obama got into office, this system was replaced with something resembling common sense. Now you take out student loans directly from the government if the government is backing them. This is only reasonable since the government is actually putting up the money. The people who risked their money on the loan (in this case the taxpayer) also get the interest. Last time I checked this was called "capitalism." Risk your capital, collect the return. (There are also still private student loans of course, issued directly from the banks and not backed by the government. That's as it should be; it's the bank's money at risk.) And once you cut out the middleman whose only job was to collect interest on someone else's money, the whole program became less of a budget hole. The new common-sense system, brings in interest from student loans, rather than simply losing money when they go bad. The old system was set up so it could only lose money. I think we call that a "subsidy."

To Romney and Ryan, of course, cutting out the middleman is unacceptable. If elected, they will make sure that bankers get to charge interest on someone else's money again. It's that simple.

Romney and Ryan say that the old, broken system was better because it involved "free enterprise." "Free enterprise" here means "bankers taking a fat cut of a government program for no special reason." The bankers have no skin in the game. All they do is make the system more expensive and inefficient. It's welfare for the wealthy. On the other hand, Republicans call Obama's direct government loan program, where you pay the people who actually lent you the money, "socialism." "Socialism" here means "not giving taxpayer money to bankers for free." We've gotten to the point where the Republicans even call sensible capitalism "socialism."

There are other questions about student-loan policies that are important, and student loans have become a touchy issue as students as public higher education has its funding stripped away and the difference is loaded onto the students' backs. But this difference between Romney and Obama is their whole approach to the economy in a nutshell. For the Republicans, government's role is to provide fat handouts to the rich, who feel naturally entitled to them. Then the recipients of those handouts can shout loudly about how they, the private businesspeople, create all the wealth themselves so why won't the government get off their backs? What they really mean is: "Hey, taxpayer, bend over so we can climb on your back."

Some things aren't complicated.

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