House Republicans Confused on Student Loan Debate

How many employees does it take to run a government program? Conservative ideology teaches that the correct answer is, “as few as possible.” Can the federal government create jobs? Conservative ideology teaches that the correct answer is, “No, because the federal government must first tax someone, thereby destroying jobs, to generate the revenue that will pay the salaries of government employees.” Great conservative politicians and legislators of the past, such as Barry Goldwater (pictured at far right), had these basic tenets running through their veins. Yet these principles appear to be all but lost on today’s Republican party when it comes to the issue of federal student loan policy.

Republicans on Capitol Hill are grasping for good public policy arguments to fight legislation now under consideration in the House of Representatives that would eliminate the Federal Family Education Loan program (FFEL), which subsidizes private lenders to make government-backed loans, and replace it with an expansion of the Direct Loan program. But a recent memo on the student loan reform bill from the House Republican Conference (a sort of GOP messaging machine) reveals a party deeply confused about its core principles — and about how the federal student loan program works. The memo tells House Republicans to oppose a move to 100 percent direct lending because it “kills jobs and greatly expands the federal government’s control of the education loan market.” Come again?

The two federal student loan delivery systems (FFEL and Direct Loans) are part of the same government program that by law must provide loans with virtually identical terms to student borrowers. A move to 100 percent direct lending would certainly mean that fewer workers would be needed to run the program, even though all eligible students would continue to receive the same government loans they did before the change. In other words, fewer resources would be devoted to administering the same benefits provided by a government program.

One would think that Congressional Republicans would champion this lower-cost, smaller-government approach. But this is not your father’s (or your grandfather’s) Republican Party. It appears that House Republicans believe that the more resources and jobs devoted to FFEL the better. Their rationale is that these resources and jobs are part of the “private sector” because they are employed by private entities, like Nelnet or Sallie Mae. Thus, a move to 100 percent direct lending makes the federal government bigger and destroys “private sector” jobs associated with administering FFEL.

Deference to the private market versus government activity is a worthy conservative principle. But Republican arguments in favor of FFEL turn this tenet into an embarrassing sham. When private entities are paid under no-bid formulas to run a government entitlement program as they are in the FFEL program, it’s quite a stretch to claim the jobs entailed are “private sector” jobs. But the sham doesn’t end there.

In their support for the FFEL program, it appears that House Republicans want big government too — they just want to dress it up as private enterprise. Under FFEL, the federal government sets the terms of the loans while taxpayers insure private lenders against 100 percent of the interest rate risk, subsidize administrative costs, and cover all but a sliver of default losses on loans. How exactly does that arrangement make for smaller government than if the same loan were made directly from the Treasury?

Conservatives watching the House debate student loan reform this week should be saddened to watch the Republican party make a mockery of their small-government ethos and support for private enterprise. The Republicans could certainly use a leader like Barry Goldwater to remind them what they stand for.

The author is a former Republican Congressional Staffer.