the finances. The trouble comes from the specter of federal control of American higher education. “Obama loans” may seem benign but they threaten academic freedom and may compromise the quality of academic programs. Posted on 03/16/2010 12:48:49 PM PDT by rmlew
p class="MsoNormal" style="line-height:normal;tab-stops:436.5pt">Congressional Democrats have added President Obama’s takeover of the student loan industry to the health care reconciliation bill. It is a troubling development, but not because of the finances. The trouble comes from the specter of federal control of American higher education. “Obama loans” may seem benign but they threaten academic freedom and may compromise the quality of academic programs.
The move by the Democrats forestalls a debate we need to have over who controls this key institution. Since 1965, the federal government has subsidized colleges and universities by guaranteeing loans that students take from private lenders. Obama’s idea is to cut the banks out of the picture as loan-originators and have the Department of Education lend directly to students.
On the surface this so-called “Direct Lending” sounds thrifty. Over ten years the government would “save” billions of taxpayer dollars that would otherwise be spent in fees and subsidies to private lenders. The Congressional Budget Office has slashed the projected savings from $87 billion to $67 billion over eleven years. But that’s still a lot. What’s not to like? And Direct Lending has been in place on a smaller scale for about fifteen years. Lots of colleges already do it and like it. We know it works.
Some moderates and conservatives are persuaded the Democrats are right. Congressman Tom Petri (R-Wis.), for example sees the switch to direct lending as a gain for taxpayers over the “crony capitalism” that has marked the frequently corrupt behavior of the private lenders. He supported the version of the bill passed by the House last fall. The actions of some of the lenders have indeed been unconscionable. A scandal that erupted in early 2007 exposed cozy deals between many lenders and colleges that tricked students into taking disadvantageous loans, and it later came out that some lenders were manipulating federal rules to cream off hundreds of millions in undeserved subsidies. Crony capitalism indeed.
The federally subsidized student loan system surely stands in need of reform. But “Direct Lending” may well be a cure that is worse than the disease. The main problem is not financial but political. It will make American higher education extraordinarily vulnerable to political interference. Will Congress, presidential administrations, and the Department of Education resist the temptation to misuse their new power? Direct Lending will give the federal government decisive if not quite total control of higher education finance.
It is not as if the federal government has taken a hands-off approach in the past. Consider what happened to men’s teams in sports such as swimming and wrestling. They 
have been eliminated in most colleges because Title IX of the Education Amendments of 1972 has been read as requiring equal numbers of men and women in college athletics. The law itself was anodyne: “No person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving Federal financial assistance..." But one faction read that qualifying phrase, “receiving Federal financial assistance..." and saw an opportunity. They succeeded in transforming Title IX from a law against discrimination into a system of quotas. Too many boys playing college sports? The Department of Education will knock your college off the list of institutions eligible to receive federally-guaranteed student loans. That would be a death sentence for most colleges. In the name of “gender equity,” the government used its financial aid muscle to impose its own agenda on one dimension of college life.
Or consider the Department of Education’s Office of Civil Rights which has more than once used the government’s financial leverage to foster racial preferences in college admissions and hiring.
But it is not just the Left that has attempted to tell colleges what to do. Under President Bush, Secretary of Education Margaret Spellings attempted to change the nation’s college curricula to produce college graduates whose skills mesh better with the needs of business and industry. Discovering that she had no direct say over what colleges teach, Secretary Spellings tried to get the nation’s accreditors to implement her plan for her. She didn’t succeed—but then again, she didn’t have the advantage of having total control over student loans. Direct Lending will change that, and future Secretaries of Education, whether moved by Obama-style progressivism or Bush-style utilitarianism, will have a great deal more power to get their way.
In our system, the federal loans nominally go to students, not to colleges. But this is largely an illusion. The money goes to the colleges; the students acquire mainly the responsibility to pay it back with interest. If all goes well, the student also gets an education, but that’s a lot less certain. Higher education loans are a peculiar transaction. The lender doesn’t end up with property, such as a car or a house; all he gets is a time-limited opportunity to study at a particular college. Such borrowing may be more prudent than borrowing cash for a spree at a casino—or maybe not. It depends on the student and the college. College completion rates are so low that clearly millions of student borrowers end up with little to show but their debt.
This is a system that deserves serious rethinking but if the underlying problem is that it tricks many students into imprudent debt, don’t count on Direct Lending to fix it. Obama has called for a massive scaling up of higher education. He wants the United States to have the highest percentage of college graduates in the world by 2020—a plan that would require us to double the current number of students currently enrolled, from 18 million to 36 million. Direct Lending is part of his plan in two ways. The “savings” achieved by cutting out the banks would be mostly recycled as grants to low income students, and the Department of Education would borrow funds from the U.S. Treasury at a low rate of interest (2.8 percent) and lend them at a much higher rate (6.8 percent). It is a good business to be in—especially if you have run all your competitors out of town.
But it is not so clear that this plan is good for higher education or good for the nation. It rests on twin premises both of which seem doubtful: that college is the best choice for nearly every teenager, and the nation will prosper if we can just award enough college diplomas. I’d like to see a genuine national debate on these matters instead of a rush to put into place—with no debate at all—a financing scheme meant to lock us into that destination.
Direct Lending will turn the majority of college students into clients of the federal government, dependent on the government’s decisions about how much they can borrow and at what rate. Direct Lending at the same time will solidify the government’s role as the main patron of the colleges and universities themselves. The Direct Lending system would create an unparalleled choke point over higher education. This might sound appealing to those who think higher ed is in need of a good throttling, but it isn’t very likely that the new opportunities to control what colleges and universities do are going to prompt an intellectual renaissance on campus or an end to the spiraling increases in costs. Instead, the choke point will be used to force colleges and universities to scale up and eliminate obstacles to expansion. Obama’s own program, remember, is to double the size of higher education by the end of the decade.
Direct Lending, like Obama-care, is federal control dressed up to look like rational efficiency. It isn’t on its face a “single payer” system. After all, parents can still pay tuition out of pocket or mortgage their houses (if they have any equity left) to meet college bills. And states can and will still subsidize their public colleges and universities. Those state subsidies, however, are dwindling—and the cutbacks are sparking riots such as those on March 4, among students who have grown accustomed to thinking cheap college is a right.
Direct Lending is almost certain to amplify that kind of thinking. Bankers lend money to make a profit, not to advance a social agenda and, though they can be pressured to go along with a political program, they never lose sight of the reason they are in business. Government 
agencies are different. They face constant temptation and pressure to leverage the funds they control to achieve ulterior purposes. Inevitably the federal government will favor some programs over others. Let’s consider.
It is not hard to imagine, for example, that secular institutions will fare better than religious ones under Direct Lending. The secular Left bristles with hostility to public expressions of faith. Some of the current flashpoints are campus religious groups that refuse on religious grounds to accept gays into their leadership; campuses that display the Christian cross in their chapels; and sectarian colleges that promote the idea of intelligent design. The lines of attack to anticipate are that public money shouldn’t be used for religious purposes, and that religious groups “discriminate.” We might well end up with the educational equivalent of “death panels.” Perhaps “death of God panels.”
An exaggeration? Perhaps. But with a little ingenuity almost any issue can be framed in the rhetoric of “civil rights,” making it fair game for the regulators. Reaching though thousands of separate lenders to impose a point of view on colleges, however, is cumbersome. Having just one lender to deal with makes it easy. And higher education is by no means lacking in energetic “separationists” who are eager to banish religious thought from the curriculum.
Creating barriers to religion and other dis-favored topics is one way that Direct Lending could be harnessed by political forces. Another way is to impose content that an interest group favors. Typically this involves the rhetoric of “academic standards.” Some 675 college and university presidents have already signed the “Presidents’ Climate Commitment,” committing their institutions to putting concern about global warming at the center of their teaching. What would happen if the advocacy groups behind that voluntary document lobbied Congress to make their agenda a mandatory part of federal-supported higher ed? It would have at least as good a chance as cap ‘n trade, and maybe better, since legislators could portray it as costing nothing.
Another ideology traveling under a soothing name is “civic education.” This doesn’t mean learning the numbers and names of Congressmen. It is, rather, the latest re-packaging of progressive politics as a branch of learning, and just the sort of thing that could be insinuated into a Department of Education program as a wholesome “academic standard.” Meanwhile, the enforcers of Title IX have moved from college sports to college science, and are pushing hard for quotas for women in labs, faculty positions, and student admissions. Direct Lending could morph into another tool for gender re-engineering the university in fields where women’s academic preferences fail to match the ideological ideal of equal numbers of everything.
Anyone who thinks the Obama administration doesn’t have an appetite for using federal power to re-write college curricula ought to consider “Race to the Top,” the administration’s program for K-12. It is precisely a set of federal standards tied to eligibility for federal funding. The trail has already been blazed.
“Race to the Top” also contains a warning for what federal standards can do. Several states have curricular standards substantially more rigorous than those embodied in Race for the Top. Their governors have been faced with the hard choice of sticking with their existing programs and foregoing the federal largesse, or taking the money and compromising their schools.
Could something similar happen with higher education? Secretary Duncan’s predecessor, Margaret Spellings, already gave it try. There is no shortage of visionaries who are convinced that they have the one indispensable idea that belongs in every college curriculum. Whether it is “multiculturalism,” “Great Books,” man-made global warming, “free markets,” or Foucault, the one-size-fits-all curriculum is a bad idea. American higher education works best when individual institutions are free to explore, experiment, and challenge.
I am a critic of some of these approaches and an advocate of some of the others, but I have no desire to ban some or make the others universal. Let each competing school of thought make the best case it can. My biggest worry is that American higher education already tends towards stale conformity. The Climategate scandal provides a dramatic example of how genuine debate was for a period of years shut down in favor of an enforced “consensus” based on social pressure rather than scientific evidence.
We have a system of higher education that is highly vulnerable to such groupthink. If we add to that an arrangement of institutional funding that has no practical firewalls against being turned to ideological purposes, we face the likelihood of serious damage to the quality of American higher education.
Are these well-founded worries? Am I taking alarm at a measure that is really just a common sense step toward better government stewardship of an expensive program? I am not an especially humble critic, but sure, I could be wrong. I have been painting the picture in primary colors. But here’s the thing. I am raising questions that really ought to be examined thoughtfully by our legislators and not just brushed aside in a slapdash effort to get the bill on the President’s desk by the end of this week. I don’t think anyone in Congress intends the sort of consequences I have been describing. They just haven’t thought much about how higher education actually works. My point is that Direct Lending creates a huge opportunity for mischief, and the mischief-makers will figure that out soon enough.
The reason that Direct Loans are being bundled into the reconciliation bill is that the Democratic leaders of Congress reckon that they do not otherwise have the votes to get it passed. When it comes to health care, the Democrats defend this parliamentary maneuver by saying that, over the last year all the arguments have been heard and weighed, and that it is at last time to act. I don’t find that a very compelling argument for health care, but be that as it may, the same cannot possibly be said about Direct Loans. This is a dramatic restructuring of higher education finance with implications far beyond the dollar amounts, and yet it has received barely any public notice at all.
Let’s slow down and look at the thing. Concentrating so much power in the hands of a government agency may save money, but it comes with large risks and it is tied to an agenda that Americans haven’t really had the opportunity to assess. We aren’t really going to save money; we are just going to spend it in a different way, generally by financing college education for millions of unqualified and marginally qualified new students. We appear headed towards a doubling of college enrollments with no provision for ensuring the quality of college programs. We face the risk of this system being turned against students and colleges that uphold traditional but now unpopular views, and an even stronger risk of having fashionable ideologies—the progeny of Title IX—imposed top-down on all of higher education. What could go wrong?
For Race I'm crossing them all out and writing in REDNECK
bookmark
Just occurred to me...
Didn’t Obama want mandatory 2 year “voluntary” service of some form to be qualified for student loans? Easy to do if the government controls all student loans.
To read later
HEE,hee ,hee, clicked on the link and her page came up but refused to take a message. She must have already gotten a few.
It must be crystal clear to everybody by now what the Ubanga administration is all about: Reparations.
And "justice"...
income justice
healthcare justice
mortgage justice
education justice
jobs justice...
I wonder how much a role Ayers is playing in Obama’s progressive education agenda.
...clicked on the link and her page came up but refused to take a message...
Try this one...
http://www.speaker.gov/contact/
Is there anything Nobama doesn’t want to take control of?
early 60’s = National Defense Student Loans (NDSL) get people to go to college to improve national defense
early 70’s = National Direct Student Loans (still NDSL)- because Defense was not politically correct
80’s = Through lobbying the bankers got to make the loans
NOW - Back to the govt so it has more control
Update: Inside Higher Ed reports that the bill, as re-figured over the weekend will “fall well short of the Obama administration’s original proposal to transform the student aid programs, giving President Obama and Education Secretary Arne Duncan few of the policy changes and accountability tools they’d hoped for.” The cuts that seem likely would knock out a few particular programs that the Obama administration favors, such as the American Graduation Initiative which we wrote about in “A Safer Way to Squander.” The core idea of the reconciliation approach, however, remains the same. The Direct Loan program would entirely replace federally-guaranteed student loans through private lenders.
Exactly. The Federal Government should not be involved in education in any way, shape, or form period.
to recieve a college loan (soon grant) you will have to have approval from your congressional aristocrat lord.
I expect this to be more income and wealth redistribution.
For each year one “serves” as a community organizer, the loan gets forgiven.
Yeah, let's give that agency more tentacles.
Anyone with a "B" average in prerequisites gets put into a lottery pool for the nursing courses; that way lots of minorities are included.
It takes seven years on the average to get an AA in Nursing in California.
I think that it’s awful that there is one less government subsidized program for private banks to profit from.
Your son should tough it out and pay as he goes though school. Loans are not an entitlement and this hardship will build character.
Obama loves jealous fools. In 1965, private educational lending was regulated and subsidized. Now it is nationalized. This is exactly what is happening with health care. In a few years, when the government nationalizes health care, will you say “I think that it’s awful that there is one less government subsidized program for private insurance companies to profit from?”
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