Shortly after Bill Clinton was inaugurated, he promised to make college more affordable by reforming the student-loan program. Now, the administration is opposing a bipartisan proposal that would reduce interest rates on student loans, and do so in a way that both the Congressional Budget Office and the Office of Management and Budget have said would save the government millions of dollars.
The Clinton approach, from day one, has been that the Department of Education can lend to students more cheaply than banks do. Dubious as this proposition sounds, hundreds of institutions of higher education were persuaded to enroll in the Education Department's so-called direct-lending program. Now some are rethinking.
The Burlington Free Press, hardly a conservative paper, began publishing editorials earlier this year calling on the University of Vermont to withdraw from the Clinton direct-lending program. The Vermont Student Assistance Corporation, a non-profit lender, was offering a more attractive loan package than the federal government, so the university took the paper's advice. Other schools are likely to follow suit.
And how is the Department of Education going to stem defections? Apparently, by breaking the law. Federal law mandates a 4 percent fee when students take out a loan. But in June, the department announced it was lowering its fee to 3 percent, so it can undercut other lenders. The department has also been trying to discredit a study, released by its own inspector general, showing that the government spends 31 percent more than private lenders would spend if they administered the program.
The congressional plan would tinker with the formula used to calculate loan rates. The likely effect would be to attract more banks to the private-loan market, creating greater competition, and, in turn, lower rates. That will benefit students, which is why the proposal has the support of liberals like Bill Clay and Matthew Martinez, both senior Democrats on the House Education and the Workforce Committee. But the Clintonistas cling to the idea the Department of Education is the supreme lender. Guess that's why Clinton calls himself the education president.