Let your fingers do the walking to reform

    Health care got most of the buzz, but major changes in the federal student loan program were part of Congress’ busy month of March.
    In his Center Square essay this week, Chris Satullo argues that critics of the student loan reforms are off base.

      [audio: satullo20100404.mp3]

    Back in the 1990s, a fine mayor of Indianapolis named Stephen Goldsmith used what he called “the Yellow Pages test.”

    If a glance at the Yellow Pages turned up a list of private firms providing the same service as his city government, Goldsmith asked whether having city workers do the task really added any value.

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    If the answer was no, he got his city out of that business.

    Tennessee Sen. Lamar Alexander tried to channel Goldsmith lately, as he blasted President Obama’s reform of the student loan program.

    If it’s in the Yellow Pages, Alexander gibed, Obama wants to take it over.

    Good sound bite. But bad logic. It gets Goldsmith’s point all backwards. And it smacks of hypocrisy.

    The student loan reforms were tucked into the larger health care package.

    They’re good news for the college-bound and for taxpayers. By cutting out fees to student-loan middlemen, the U.S. government will save an estimated $61 billion over 10 years. The savings will be used to increase Pell student grants modestly and create more favorable payback terms on loans.

    This ends a corrupting handout to private lenders that reformers have been criticizing for two decades, but which bank lobbyists had long managed to preserve.

    Lenders such as Sallie Mae were paid hefty fees to service loans to college students, loans backed by a federal guarantee. In other words, the lenders got the profit while Uncle Sam, meaning we, the taxpayers, took all the risk.

    It was a racket. It did nothing to put college in reach of more people.

    Playing their game of “if Obama wants it, it must be wrong,” Alexander and other Republicans decry the potential loss of jobs at the private lenders. Funny, they cry no similar tears when people such as teachers, social workers and environmental scientists get laid off in the name of efficient government.

    Alexander missed a step of Goldsmith’s Yellow Pages test. Goldsmith first checked whether a good reason exists for government to do a task. He didn’t just assume there wasn’t one. In this case, the student loan business is something government already does more efficiently than private banks.

    It took 20 years of trying, but Barack Obama just ended one of the most pointless corporate subsidies. Now, if only colleges would back up his good deed by doing something to end their tuition cost spiral.

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