First, the good news: Yesterday, a congressional conference committee passed legislation that would cut subsidies to lenders participating in federal student loan programs. Terrific! Lenders – especially Sallie Mae, the federally spawned queen of student loans – deserve no taxpayer-furnished profit, and this bill would get us a little closer to that ideal.

Unfortunately, the good news ends there. Only a measly $750 million out of about $22 billion in subsidy cuts would go to the taxpayers who have been forced to enrich lenders for decades – and that will be in the always-questionable from of “deficit reduction” – and the rest will be transferred to the other group on whom taxpayers have long been forced to lavish money through federal aid: students. The bill would cut interest rates on subsidized federal loans, for instance, from 6.8 percent to a minute 3.4 percent over four years; boost Pell Grants from the current maximum of $4,310 to at least $5,400 by 2012; and forgive loans after ten years of making payments for people in “public service” jobs ranging from firemen to prosecutors. And, in the end, the big lenders like Sallie Mae will probably be just fine, because the bill would institute an auction system in which lenders would bid for control over federal loans, giving the big guys huge advantages over little banks and lenders.

Student advocates are, of course, pleased as punch with all this, especially over at the New America Foundation, where for months they’ve been leading the charge against private lenders and for this auction scheme. Ironically, they partly hailed the compromise on the grounds that the auction would use “market forces to set student loan subsidy rates.” This, of course, begs the question: How can you love an auction because it supposedly uses market forces, while simultaneously supporting the gargantuan market distortion that is the overall federal student aid system? Unfortunately, the only possible answers seem to be that (a) you are a politician intent on bribing the college-going population and their parents to vote for you, (b) you are confused about how a real market works, (c) you work in academia and know that the more the government shells out, the better your life will be, or (d) all of the above.

Unfortunately, this legislation seems likely to be signed by president, and if it is, you can ultimately chalk it up to (d) being the answer in Washington.