Student Loans: Obama Reform or Bank Rip-Off?

David Herzenhorn's reportage in today's Times isn't as clear as it could be. But once you struggle through the disorganized mess of one-the-one-hand -this, on-the-other -hand-that, the bottom line is obvious enough: the Obama administration wants to save taxpayers $94 billion over the next ten years by having the federal government directly administer Pell educational loans itself, rather than continuing to let private banks horn in on the action as middle men out to make a profit.

Critics of the subsidized loan system, called the Federal Family Education Loan Program, say private lenders have collected hefty fees for decades on loans that are risk-free because the government guarantees repayment up to 97 percent.

Historically, government-backed student loans have been pretty much a government show from start to finish. They still are. "Privatizing" them by letting banks play the middle man has never been an efficient or sensible use of taxpayer money.

What do the banks do in exchange for the huge profits they snap up? First on the banking industry's list of talking points is "marketing." Second? "Customer relations."

Oh my, what a crock! As anyone ever associated with higher education can tell you, the last thing student borrowers or tuition lenders need is to see money thrown away on "marketing" and "customer relations." Almost everywhere, students in need know where to go and the colleges administer the loan programs all by themselves.

It has ever been thus. Nary a student in the nation gets the idea to borrow for college from a bank "marketing" campaign, any more than cancer patients get the idea to go for chemotherapy or radiation from television ads. Cancer victims rely on their oncologists. Needy students rely on the college financial aid office.

No one in his right mind turns to private banks when they want to apply for a loan. They know that if they do, they'll simply be referred back to the source: the college student loan office.

Allen Boyd (D-Fla) must know this. That's why, we imagine, he makes an even less persuasive argument against the Obama administration proposal: jobs.

“The president’s proposal,” Representative Allen Boyd, Democrat of Florida, said in a floor speech, “could be detrimental to thousands of employees who serve in the current student loan industry throughout this country, 650 of which are located in Panama City, Florida.”

Boyd's numbers are suspect, of course. It's hardly conceivable that as many as 650 private banking employees in Panama City, Florida are engaged, day after day, in the utterly useless make-work of "marketing" student loans to students. If they are, their work assignments should be redirected.

How about re-assigning them to, say, the home mortgage department to disperse all that TARP money? As Elizabeth Warren says, "ultimately, the banks exist to serve the American people. Not vice versa.