Is Congress Trying Take the Fun Out of Student Loans?

[After hearing recent comments that Sen. Lamar Alexander (R-TN) has made suggesting that borrowing Direct Loans would be less “enjoyable” for students than borrowing through the Federal Family Education Loan (FFEL) program, we decided to write this facetious letter. We hope you enjoy it.]

Dear Senator Alexander:

We have to take issue with a sound bite you have been using lately to attack President Obama’s proposal to eliminate the FFEL program and shift to 100 percent direct lending.

In a Washington Post oped earlier this month, you warned that if Congress approved legislation enacting the president’s plan, “getting your student loan will become about as enjoyable as going to the Department of Motor Vehicles.” Yesterday at a Republican news conference denouncing the measure, you altered the line slightly, saying that it will be “about as pleasant as standing in line to get your driver’s license.”

But since when has getting a student loan to pay for college ever been an enjoyable experience? And why would it be any more pleasant to get one from the FFEL program than from direct lending? The process for obtaining Direct and FFEL loans is nearly identical. Under both programs, students must first go through the U.S. Department of Education — by filling out the FAFSA — to determine their eligibility for loans; consult with their college’s financial aid office; and sign a master promissory note.

None of this is particularly fun, though it’s generally more enjoyable than dealing with the DMV or getting your teeth cleaned.

Now we understand that you are trying to score political points by trying to scare people into thinking that the president’s proposal would lead to a giant “government takeover” of the federal student loan program. But let us remind you once again that it is impossible to have a “government takeover” of a government program.

In reality, direct lending and FFEL are just two different ways of delivering federal loans to students. Both programs have the same goal of ensuring that everyone who wants to go to college has access to loans with favorable terms. In both, the federal government sets all of the terms of the loans in law and guarantees them against default and interest rate risk. Each uses private companies — often the same private companies — to service and collect on these loans.

The only real differences between the two programs are the entities that originate the loans — in the FFEL program, banks and other private lenders, and in Direct Lending, the U.S. Department of Education — and the subsidies the government provides private lenders and other players (like student loan guaranty agencies) in the FFEL program to carry out these services.

Senator, we know we can’t convince you of the wisdom of student loan reform. But maybe we can agree on at least one thing — while there are many, many enjoyable things to do at college, taking out student loans is not one of them, regardless of which federal program you borrow from.