Another Liberal $uccess $tory

The Wall Street Journal Political Diary Newsletter today carried an interesting comment by Brendan Miniter which describes the typical result of Liberal “feel good” policy making. By legislation, the Congress reduced the interest rate that a bank could charge for student loans to make college “more affordable”. The Congress also reduced the fees the feds pay to banks to underwrite student loans. Now it appears that a substantial number of student lenders have reduced their participation in the program or dropped out of the market. Private lenders do not originate loans that they lose money on – that is a government function.

The Liberal Congress will respond by increasing Government direct loan programs and once again the Government will have undermined the private market and taken control of a market segment.

This is not good news. Wake up America.

Mr. Miniters commentary:

School of Finance

One of the loudest promises made by Nancy Pelosi and the Democrats when they regained control of Congress was to make college "more affordable." Sure enough, a new Democrat-sponsored law aimed to do just that... and now student lenders are dropping out of the business like so many frat boys after the first round of finals. Millions of students are being left in the lurch just as they're seeking help with next fall's tuition.

By one count, some four-dozen student lenders have either curtailed loans to students in recent months or closed up shop entirely. Sallie Mae, the biggest, rolled out its Chief Executive Al Lord yesterday to warn of a "train wreck" in the $85 billion student loan market without a federal bailout.

The broader credit crunch is certainly playing a role, but Mr. Lord laid most of the blame on a Democrat-sponsored law that took effect in October. As part of her "First 100 Hours" agenda, Ms. Pelosi and Co. slashed interest rates banks can charge students in half to 3.4%, leaving Uncle Sam to make up the difference. Democrats also pushed through cuts to the fees the federal government pays to banks for underwriting student loans. "It's not even a matter of break-even. [The lenders] lose money on these loans if they originate them," one financial analyst told Dow Jones Newswires last month.

The Federal Family Education Loan Program likes to boast that it's now the dominant source of college loan funding, making "it possible for borrowers with no income, credit history, cosigner or collateral to get student loans at low interest rates." Talk about subprime. All this federal money is also a substantial reason for the rapid inflation in tuition costs. Every Congressionally-created problem must have a Congressional solution. Pelosi ally Rep. Mike Miller, chairman of the House Education and Workforce Committee, is now pushing legislation through that will both lift the cap on federally subsidized student loans and expand Uncle Sam's direct loan program -- completing Washington's takeover of the business and no doubt setting the stage for bigger meltdowns ahead.

-- Brendan Miniter