The Banksters Lose One?

by dday

SAFRA, the student loan bill to end the privatization of loans already backed by the government, passed the House today by a vote of 253-171. 6 Republicans (Buchanan, Cao, Johson (IL), Petri, Platts, Ros-Lehtinen) voted yes; 4 Democrats (Boyd, Herseth Sandlin, McMahon, Kanjorski) voted no. Considering that Stephanie Herseth-Sandlin is from the wholly owned banking state of South Dakota, that’s impressive party unity, probably because it’s indefensible not to be for this bill. As Gail Collins explains today:

It would simplify the federally guaranteed loan system, save an estimated $87 billion over 10 years and use that money to increase aid to low-income students, improve community colleges and raise standards for early childhood education.

Let us stop here and recall how the current loan system works:

1) Federal government provides private banks with capital.

2) Federal government pays private banks a subsidy to lend that capital to students.

3) Federal government guarantees said loans so the banks don’t have any risk.

And now, the proposed reform:

1) The federal government makes the loans.

Wow. You really do wonder why nobody came up with this idea before.

Given all of the other profit centers that the banking industry has opened up, and the clear logic of the bill, maybe they figured they can’t stop this one. If it runs into trouble in the Senate, it could easily move through reconciliation since the whole point of it is to end wasteful subsidies to the private lending market, which expand the deficit. I think there will be 50 votes for this, as Pell Grants are popular, the private loan market serves no purpose whatsoever, and another part of the bill offers challenge grants for early childhood education, another broadly popular priority.

So I believe we are going to see this change in higher education. And millions of college-age students, many of whom supported Barack Obama in record numbers, will recognize this almost immediately in higher Pell grants, cheaper loans and simpler forms. Savvy play, as well as a good policy.

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