Commentary

Student Loan Fix Will Prove Costly

America is teetering on the edge of an $11.6-trillion abyss called the “national debt,” a financial chasm that threatens to swallow our economic future whole. And what are our leaders doing about it? If a bill working its way through Congress is any indication, they’re insisting that they’re pulling us away from doom, while they quietly expand the monstrous hole.

The bill is the Student Aid and Fiscal Responsibility Act (SAFRA), the focal point of which is elimination of the Federal Family Education Loan program — which uses federal bucks to back student loans from private lenders — and replacement with lending straight from Uncle Sam. But that’s hardly all it would do. According its author, Congressman George Miller, D-Calif., the bill would use the savings from the transition to fund a plethora of new or expanded federal programs, all while putting $10 billion toward deficit reduction.

But how much will going from guaranteed to all-direct lending really save, and will it be enough to pay for the bill’s new spending?

The savings figure SAFRA supporters have been using is $87 billion over 10 years, a number generated by a June Congressional Budget Office estimate. Touting that number, in mid-July Miller introduced SAFRA in the House Education and Labor Committee. Soon after, it was moving on to the full House.

Here’s the thing: That all took place before the CBO had estimated the total cost of the bill, not just the expected savings from going to all-direct lending.

CBO figured out the total cost three days after Miller’s committee approved SAFRA and estimated that the bill would likely cost taxpayers another $5.7 billion. And the cost didn’t include a dime for deficit reduction.

That was just the beginning. Three days after his office released its official estimate, CBO Director Doug Elmendorf sent a letter to Sen. Judd Gregg, R-N.H., answering an inquiry about what the estimated savings would be were the CBO to fully account for lending risk. Elmendorf’s reply: About $33 billion smaller.

Suddenly, it was clear that a bill touted as a taxpayer helper would much more likely be a new, roughly $40 billion burden.

Rather than acknowledging that SAFRA is a net burden, supporters have attacked Republicans as dirty tricksters for requesting CBO’s risk estimate. They also continue to imply that the entire bill would save money, though they typically only cite savings from the transition to direct lending to make their case.

“It’s clear that Republicans didn’t like the truth — that our legislation generates almost $90 billion that could be used to help students, families, and taxpayers — so they shamelessly decided to have a little fun with the numbers,” Miller said in a July 28 press release.

The temptation is to focus on the dollar amounts or how removing “private” companies from federal lending somehow undermines free enterprise. Indeed, many Republicans, to their discredit, have zeroed-in on the latter, as if having Washington guarantee company profits is what freedom is all about.

The most important part of this story is that despite promises of fundamental change in Washington, we’re getting foul business as usual. Rather than using the rare opportunity to reduce the deficit without hurting anyone’s opportunity to receive benefits, our politicians lavish even money on special interests while insisting they’re doing the opposite.

Thankfully, as the numerous demonstrations against federal health care legislation have shown, many Americans aren’t taking politicians at their word anymore. But the really hard, long-term work will require stopping not only a few, huge government expansions but halting all the smaller pushes, like SAFRA, that quietly inch us over the edge of the financial debt abyss.

Neal McCluskey is associate director of the Cato Institute’s Center for Educational Freedom and author of Feds in the Classroom: How Big Government Corrupts, Cripples, and Compromises American Education.