Corporatist Dems Killing another Public Option

This story is several days old. But I wanted to go back and show how, after a pack of lobbyists killed one attempt to get government to use its power to save money and improve health care, another pack of lobbyists are trying to do the same with higher education.

Eric Lichtblau (who, IMO, does much better at digging out DOJ scandals than reporting legislative battles) describes how the plan to replace privatized student loans–in which the government guarantees student loans that lenders then repackage and profit off of–with direct loans form the government is in political trouble.

But an aggressive lobbying campaign by the nation’s biggest student lenders has now put one of the White House’s signature plans in peril, with lenders using sit-downs with lawmakers, town-hall-style meetings and petition drives to plead their case and stay in business.

House and Senate aides say that the administration’s plan faces a far tougher fight than it did last fall, when the House passed its version. The fierce attacks from the lending industry, the Massachusetts election that cost the Democrats their filibuster-proof majority in the Senate and the fight over a health care bill have all damaged the chances for the student loan measure, said the aides, who spoke on the condition of anonymity because they were not authorized to discuss the matter publicly.

The effort to return to using direct loans to students rather than using government guarantees to support student loans stems from a series of scandals under the Bush Administration. Loan companies gave school administrators kick-backs to make their loans preferred at the schools, regardless of whether those loans made sense for the students. Lenders manipulated a subsidy (and churned some loans) to take advantage of a 9.5% profit guarantee that they weren’t otherwise entitled to. And, given a revolving door between the industry and DOE, students had little protection against fraud. As a result, students were paying far more than they should have for loans, and when they ultimately faced default, they had far fewer options for getting out of that debt assumed under what were basically fraudulent conditions.

By passing government-backed loans through private companies rather than lending money directly, students became captive consumers to an industry with little real competition and even less protection against fraud. The whole scheme turned college education from a necessary step to achieve a middle class lifestyle (and more broadly, to keep America competitive internationally) into a mere profit center for the finance industry.

The legislation before the Senate would curtail that system, replace a corporate welfare program, and use the savings to support the same number of loans plus many more education programs.

The money that would be saved by cutting out the private-industry middlemen — about $80 billion over the next decade, according to a Congressional Budget Office analysis — could instead go toward expanding direct Pell Grants to students, establishing $10,000 tax credits for families with loans, and forgiving debts eventually for students who go into public service, administration officials say.

The bill would also shift tens of billions of dollars in expected savings to early learning programs, community colleges and the modernization of public school facilities.

So back to my parallel with the battle over the public option.

The choices now being made in health care risk making the same mistake we’ve made in the student loan industry. Captive consumers will be asked to support higher overhead (20% or more, in the case of the Senate bill) without adequate regulatory controls to make sure those consumers get the health care they’re paying for in return. A public option would have served as one check on this system by offering consumers one option that didn’t include that 20% overhead that also benefited from more direct government oversight. It would have saved $100 billion–in the same neighborhood of savings we’ll get by reverting the student loans to direct government assistance. But corporatist Senators like Ben Nelson and Joe Lieberman killed that plan, and as a result, we have to hope (assuming a bill passes at all) the HHS Secretary proves better at regulating a powerful industry than the Secretary of Education under Bush.

And now, having seen how easy it was to kill the public option, a solution that would save the government money and better achieve the underlying goal–health care (as distinct from insurance)–some of the very same corporatist Senators are turning their sights on direct student loans.

Now, I said above that Lichtblau was much better at digging out scandals that discussing legislative battles because this is really a crappy article. For starters, while Lichtblau names which states which lobbyists are targeting–Florida, Illinois, Nebraska, New York and Pennsylvania–he doesn’t mention one of the long term sponsors of the privatized student loan boondoggle: Ben Nelson (then, acting at the behest of Nebraska’s NelNet). The same Ben Nelson who killed the public option.

Just as importantly, Lichtblau doesn’t challenge the provably false myths propagated by the lobbyist sources he uses for his story–first, that the private companies offer some great benefit to students.

If Congress backs Mr. Obama’s proposal, opponents say that students will forfeit the individualized service that private lenders are better able to offer: a one-on-one meeting in a high school gym, a range of loan options to pick from, or an 11th-hour meeting to avoid a default.

The experience of the last decade proves that this is just a myth used to hide the history of fraud, higher costs, and brutal treatment privatized student loans gave students.

Then, Lichtblau allows a loan officer–precisely the kind of person targeted by years of kick-backs–to have the final word on the “benefits” of the privatized scheme.

“We’re caught in a political struggle,” Caesar Storlazzi, the chief financial aid officer at Yale, said in an interview. Like a wave of other colleges in recent months, Yale decided in November to switch from private-sector loans to the federal government’s direct-lending program.

But with passage of the White House plan now appearing “less inevitable,” Mr. Storlazzi wonders whether keeping the private lenders in business is better for students.

“It really felt like the administration was just shoving this down our throats,” he said. “It feels a bit like a federal takeover.” With competition among lenders, he said, “We get better prices and services.”

The student loan industry paid good money for years to get loan officers to make such claims, when instead real experience showed students were getting screwed. Lichtblau should know this, since NYT covered Andrew Cuomo’s exposure of the scheme closely. But instead, Lichtblau lets those myths appear unchallenged.

What we’re about to see is not–as Lichtblau suggests–a reaction to the MA election; losing the super majority serves only to make it easier for Ben Nelson to do precisely what he did with health care, because he won’t have to share sole responsibility for it with Joe Lieberman. But the plan is the same.

This is an effort to continue the system of corporate welfare in which the government takes taxpayer dollars and uses it to help corporations develop captive relationships with consumers in all spheres in which the Great Society used to support taxpayers. Thanks to corporatists like Nelson and Lieberman, government is less supporting public good, like education and health care, but is instead helping corporations provide inadequate but financially lucrative pseudo-solutions for such things. And the corporatists, fresh off their victory on the public option fight, are redoubling their efforts to expand their scheme of corporate welfare.

(See also Jane’s and David Dayen’s take on this story.)

  1. sailmaker says:

    Loan companies gave school administrators kick-backs to make their loans preferred at the schools, regardless of whether those loans made sense for the students. Lenders manipulated a subsidy (and churned some loans) to take advantage of a 9.5% profit guarantee that they weren’t otherwise entitled to.

    One thing that is horrid about this arrangement is that student loanes are not dischargeable in bankruptcy court, an arrangement that makes sense because people were getting out of school, declaring bankruptcy (thus getting rid of the loan obligation), and moving on. Now that there are no jobs for those getting out of school, meeting the obligation is very tough, and there seem to be no options.

    My sister has $100,000 student loan debt, no job, and no way of paying. Sally Mae agreed to lower her payments $6.00 per month on a $600.00 payment. Yes, she should not have taken the debt, and of course this wrecks her credit from now until forever. That the government is going to pay Sally Mae frosts me no end.

    • emptywheel says:

      I don’t see how you can EVER say someone shouldn’t take student loan debt. For years personal finance people have said, don’t go into debt except for something that gets you something tangible in return, like a college education.

      And now we’re beating up on people who did just that? Particularly as college education costs soar? That’s the real insidious part of this plan. No one is going to second guess going into debt to pay for college.

      (Though there’s the whole issue of degree mills pushing for loans with crappy no-use education in response.)

      • Leen says:

        thanks to FdL for focusing on this student loan issue.
        One thing I have found very interesting. My youngest daughter (22) is in her last year at Univ of Colorado (she and I both feel the decision to come here instead of atteding one of the smaller schools that she had received sizable scholarships to attend was a big mistake). But after she jumped through the hoops and worked for a year in state to qualify for instate status the economic situation is doable. She followed the rules and qualified.

        But here is an interesting piece. She has three room mates. All six parents of these students are Doctors and attorneys. All three out of state students figured out a way to get in state status by lying. All claiming that their parents are not giving them any money and so they took out loans in their own names and declared independence (did not have to work for a year as my daughter did). I challenged two of them knowing that their parents give them sizable amounts of money every month and that their parents can and should pay out of state tuition. Their responses were all about being entitled since they claimed that their parents had worked so hard to get where they are “entitled” to rip off the system

        The plan for all three is that they will graduate and their parents will pay back their loans and then pay off in full saving about half of the tuition that they would have paid for their kids if they had been paying out of state tuition. This seems to be a well known strategy used by these kids who are “entitled” Some of their responses to ripping off the system sounded like Wall Street Bankers responses to using taxpayers money to bail themselves out and then profitting off of the bailout.

        These white priviliged kids are in training for those Wall street jobs.

        One thing that I know from direct experience with my two oldest daughters. Smaller private schools give far more support and money to those who qualify. And is so often the case smaller classrooms are often a much better environment for learning.

        • Leen says:

          Wonder if any of the folks here at FDL used this priviliged strategy to beat the system and get their kids in state status in universities where they should have and could afforded to pay?

          anyone know of any wealthy parents students who have lied to get their kids in state status where they should not have gotten it. The way I see it many of these young people with this “entitlement” attitude have been in training most of their lives.

    • sundog says:

      I doubt it will wreck her credit from now until forever. Once she finally does get a good job, creditors will be begging her to borrow from them.

      Also, has she consistently sent a payment, per month, of what she can afford? If/when in court, good faith payments matter, because no matter what they say, if you don’t have it, you don’t have it. It shows that you take it seriously, and did what you could while in this predicament. I wish your sister the best of luck.

      As for the government, I think Ben Nelson is the very definition of “Bad Government.” That useless PITA really needs to go.

  2. victoria2dc says:

    Thanks for this enlightening point of view Marcy.

    I live in CO and was driving down a busy street and happened to look up at a billboard. It was a picture of a middle class young woman and her child, “Save my job. Don’t nationalize student loans.”

    Of course I knew that something was going on, but didn’t know what it was until I read this piece. What’s the response to this? Would it mean that jobs would be moved to the Federal government? I don’t know the bill because I’m not paying attention to any of it… just your blog daily and dailykos once in a while if I’m attempting to find out what’s happening.

    It seems that the corporations and the Republicans win each and every battle. Another sad day for America and nobody seems to care.

    • emptywheel says:

      It’s not clear how many jobs would go where, though some would move to DC, yes.

      And that’s a fair argument to make, up to a point. But ultimately, we need to be able to say, as a country, we can spend $80 billion to send kids to school AND improve community colleges AND improve early childhood education–all while making the loan more palatable for the student. Or we can have the federal government subsidize private business for less value for our society as a whole. We’re increasingly doing the latter and once you go down that route, it’s hard to get off of it.

    • PaulaT says:

      Was it an Indian person on the billboard? There was an article out a while back about how Sallie Mae was promising to bring back some of the many jobs it had outsourced in order to put themselves in a better position to combat this proposal. Outsource when it benefits you, claim it benefits American workers when that benefits you. In any event, the government will need more people to service the loans if it takes them all in house but keeps the same amount of money going out in loans. They probably pay better, as well. I’m betting what jobs they don’t outsource pay little so that investors and CEO’s can make off like bandits.

  3. earlofhuntingdon says:

    Many thanks for giving this older story new legs. The theme is constant – taxpayer money subsidizes supposed capitalists, who find it easier to take guaranteed profits from the government than it is to provide a high-quality product at reasonable costs to consumers. That’s the problem of today’s American “capitalism” in a nutsbell: its lucrative but unhealthy and inherently societally damaging relationship with government.

    How is it that no serious Democrats fail to see how fighting that system would produce enormous electoral, social and economic benefits. If none appear, it suggests that the capture of party elites and governmental processes by corporations is merging into wholesale government-by-corporation.

    Whether that is fascist or medieval bothers me not; that it spells a long dark night for the middle America that emerged after the Second World War and continuing gloom for the poor and working class, should frighten them as well as the left and right.

  4. posaune says:

    The final end to a meritocracy. No education = no upward mobility. Successful reversal of the GI Bill.

    The worst part to ALL student loans? The 10% off-the-top origination fee even for Stafford loans. I remember taking out a $7500 loan every year for grad school. After the bank got their 10% the day I cashed the check, I had $6750 left for tuition (which, btw, went from $10K to $19K from 1988-91— gee, seems cheap now!) And, of course, the govt paid the interest on that 10% during matriculation, and I paid it after.

    • PJEvans says:

      Mine was earlier than yours (early 80s), so it was lower interest.
      I was out of work for a while, too, so it took longer to repay – I got a deferment for a bit. They did get all of their money, including the interest.

      And as for ‘competition’ – I don’t remember any. It was pretty much ‘these are the terms, this is the lender, accept them or do without’.

      If the banks want to treat student loans as a ‘profit center’, they have to accept regulation.

  5. koshembos says:

    The students loans coming fiasco is yet another example of our out to lunch president we voted for. It shouldn’t take two years to advance a rather straight forward legislation such as stopping bank welfare through student loans, especially when you control both houses.

    It’s yet another demonstration of the corporate booth on our necks that for some reason seems so handsome to too many senators. We should organize against the financial slavery so deeply ingrained in this not really free country.

  6. realitymatters says:

    No We Can’t

    Obama had millions of followers eager to fight for his agenda. But the president muzzled them – and he’s paying the price

    The failures of the past year, however, have left a strong sense of betrayal among many who once were Obama’s fiercest advocates. “After all the sweat and tears of the campaign,” says the creator of a popular pro-Obama website, “we were owed the opportunity to fight for something.” Adds another, “We thought we had earned an ownership stake in the future of our country through this campaign, but that ownership stake has been revoked.”

    Had Obama let his activists lead the charge and gone to the mat for health care reform, would the outcome have been any different? “I can’t say that we would have health care reform,” says Moulitsas. “But people wouldn’t be so demoralized. We’d have an engaged base still willing to fight for that change. And I tell you what: We would not have lost Ted Kennedy’s seat.”

    THANK YOU cd – rom e-man-u-well YOU STUPID POS !!!!!!!!!!!!!!!

  7. Leen says:

    What was that Obama said during his SOTU address? College loans should be forgiven after 20 years of payments and after 10 years of payments if you are doing what would be considered a job “doing servive”

    This “forgiveness” program would only apply to govenment loans I assume. government loans that would be forgiven?

    Is that correct

  8. PJEvans says:

    It shouldn’t take two years to advance a rather straight forward legislation

    It hasn’t, yet – he’s only been in office one year.

  9. bmaz says:

    If Congress backs Mr. Obama’s proposal, opponents say that students will forfeit the individualized service that private lenders are better able to offer: a one-on-one meeting in a high school gym, a range of loan options to pick from, or an 11th-hour meeting to avoid a default.

    This is pure unadulterated crap. Having the used car slaesman type sharks in the high school gym snake oiling young students is not a benefit and the government has long had the programs regarding default, notably under the William D. Ford program, to deal with defaults and potential defaults.

  10. bozhidar says:

    “Corpo dems” makes sense only if one also wld think-say that in US there is also corpo cia-fbi-army echelons, judiciary, ‘laws’, WH, congress, media, entertainment industry, schooling.

    Hey,folks, it is one big happy family. Organized just like a biker, street, mafioso gang with asssigned roles for the capo and each aide.

    Cia-army r hit men. Congress-WH-media frontman; its function being mostly damage control or telling people what’s not going on, and the invisible capo[s] being, ah, well invisible,but quite smellable!

    Recall please that corpo congress often stresses: We are a nation of laws!

    However, this i evaluate as a halflie or a partial lie. Why? Because laws in US are scribbled together by ogrish Them against; oops, for the meekish other Them.

    And,of course, solely or largely interpreted by the former Them. Poor hitler! He must be eating his heart out for not being a tad smarter snake oil salesman than a prez-congress.

    darn it!I cldn’t even sell my wife for $10. tnx

  11. Leen says:

    I would put money on it (if all my extra funds were not going to my youngest kid in college) that an investigative team could dig into small colleges and large university student loans and find wealthy kids claiming they are on their own (bullshit in many of the cases that I am aware of) and taking out loans saying parents are not helping them and then parents paying back these independent loans soon after the kid graduates.

    These kids who feel they are “entitled” to do whatever they please are being trained for those Wall Street positions. Do as they please, learn to lie big young