AIP column: An overlooked government intervention

posted at 11:38 am on October 22, 2009 by Ed Morrissey

The government takeover of student loans has not entirely escaped attention this year, as Congress has pushed to eliminate private-sector involvement in lending for college tuitions.  For instance, I wrote about the student-loan bubble in February, before HR 3221 got introduced in April.  For the most part, though, the issue has sailed under the radar of the conservative commentariat, as we have focused on larger government intrusions in private markets in health care and energy (cap and trade).  While that is understandable, we need to pay some attention to a good example of what happens when a “public option” allows government a wedge to essentially nationalize an industry, as I write in my AIP column today:

Decades ago, the federal government decided to encourage students to attend colleges and universities by subsidizing and guaranteeing loans for tuition and other expenses.  That encouraged banks to lend to what normally would be a high-risk constitiuency — teenagers without jobs.  That allowed many more students to access higher education, and lenders had little risk in the transaction – and for a while, everyone was happy.

However, that large increase in demand created pressure on prices, too.  As more students flooded into colleges and universities, tuitions increased as supply strained to meet the demand.  The size of loans had to get larger, which meant more risk transferred to the federal government as it continued to encourage lenders by making the programs nearly fail-safe.  The scope of lending also increased under federal pressure and incentives, so that more loans failed and Washington spent more on its guarantees.

If this sounds like a familiar pattern, well, it should.  The same mechanisms that inflated the housing bubble were in play in the student loan market.  When the former collapsed last year, it damaged the same financial institutions that handled the latter.  And that gave Democrats all the opening they needed to argue that the lenders were an unnecessary middleman all along.  Instead of using subsidies and guarantees to private lenders to encourage student lending, HR 3221 essentially nationalizes the process.

The bill includes another troubling intervention as well, one that gives Washington yet another wedge in yet another industry.  It commits somewhere between $100 million and $750 million to develop and produce online curricula for both high schools and colleges.  Of course, we already have people producing these programs at all levels of education; why do we need the federal government to develop parallel curricula?  It’s an opening for another power grab down the line, as Rep. John Kline told me yesterday in an interview for TEMS.

Be sure to read the whole column, and don’t forget to read some of the other fine writers at AIP.  John Hanlon analyzes Harry Reid’s $250 billion stumble.  Jimmy Bise of Sundries Shack corrects the universal health care myth.  Kim Priestap writes about the war at home, while Lorie Byrd wonders what happened to the Hippocratic Oath.


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Comments

It commits somewhere between $100 million and $750 million to develop and produce online curricula for both high schools and colleges.

More indoctrination.

publiuspen on October 22, 2009 at 11:44 AM

The House Financial Services Committee is voting right now to approve the creation of a Consumer Financial Protection Agency, a/k/a the Killing American Capital Act.

rockmom on October 22, 2009 at 11:50 AM

Compulsory volunteerism factors into this eventually, you wait.

Akzed on October 22, 2009 at 11:51 AM

How come Obama doesn’t go after “Big University”?

zmdavid on October 22, 2009 at 11:52 AM

Compulsory volunteerism factors into this eventually, you wait.

Akzed on October 22, 2009 at 11:51 AM

Exactly why we have chosen to not seek any financial aid.

publiuspen on October 22, 2009 at 11:53 AM

Compulsory volunteerism factors into this eventually, you wait.

Akzed on October 22, 2009 at 11:51 AM

When you owe the government you become the slave to the government in this case Obama’s National Service Corp.

fourdeucer on October 22, 2009 at 11:55 AM

However, that large increase in demand created pressure on prices, too. As more students flooded into colleges and universities, tuitions increased as supply strained to meet the demand.

It wasn’t just increases in “demand” that caused prices to rise. Universities raised prices BECAUSE THEY COULD, as so many students had been released from the actual payment for the education. This is why college tuition has risen much faster than inflation. It wasn’t demand, but availability of money that the student bore little relationship to. The schools knew how much they could extort out of the government and they did it.

It’s interesting how the costs of everything surrounding education have fallen, but the price of the education, itself, rises. See online courses for a perfect example. The overhead has been reduced to around ZERO, but schools charge about the same for online tuition as for brick and mortar classes. They only do it BECAUSE THEY CAN, and the government is the enabler.

Anytime the government gets involved in these enterprises, normal rules of supply and demand go right out the window. Will America ever learn? Of course not, seeing how America is coming to an end very soon – killed by affirmative action and general lefty stupidity. But, we can only hope that the Constitutional Union of America that forms from the seceding states will learn this important lesson for the ages.

progressoverpeace on October 22, 2009 at 11:57 AM

Academic freedom be damned. From now on, tenure will only be granted, and programs only approved, if core curriculum is developed by team Barry.

anXdem on October 22, 2009 at 11:58 AM

There’s a very good reason why tuition, like the housing market, had been far outpacing inflation, and the Captain has hit the nail on the head here as to why this is going to continue.

It should be noted that, in this egalitarian world, the poor can afford college while the middle class cannot.

unclesmrgol on October 22, 2009 at 11:59 AM

The National Education Admin. should be axed at the Federal level. I believe that you can better serve Education at the State level.

hawkman on October 22, 2009 at 12:00 PM

Did you miss the ads ..

Obama will give you $2,500 to go back to school

… and it’s coming straight out of his pocket … LOL

J_Crater on October 22, 2009 at 12:01 PM

OT/
More “smart power” in action.

http://news.yahoo.com/s/ap/20091022/ap_on_go_co/us_homebuyers_tax_credit

TARP money missing..no jobs..cash for clunkers boondoggle..indecision on important global military matters, now this. $600 million taxpayers dollars sent out. The IRS required no documentation that a home was even purchased.

HEY!..lets turn health care dollars over to these Einsteins.
Lets go all “green” and junk too. Cap ‘N Tax is a great idea. It’ll make everything a better deal for you. We’re all global citizens now!

Sorry for the OT rant, but this just pizzed me off when I read it.

Itchee Dryback on October 22, 2009 at 12:08 PM

Plus the government can print fiat money and extort real money from taxpayers, as needed.

Two killer advantages over any public business “competitor”.

Plus, they can make punitive laws and regulations and levy fees to hamstring any competition even further.

“Competition” in non-Bizarro world terms: government intrusion.

profitsbeard on October 22, 2009 at 12:20 PM

Where does this sh*t end?

I still cannot believe more than 40% of the country supports this nonsense.

BuckeyeSam on October 22, 2009 at 12:20 PM

Anytime the government gets involved in these enterprises, normal rules of supply and demand go right out the window. Will America ever learn? Of course not, seeing how America is coming to an end very soon – killed by affirmative action and general lefty stupidity. But, we can only hope that the Constitutional Union of America that forms from the seceding states will learn this important lesson for the ages.

progressoverpeace on October 22, 2009 at 11:57 AM

Well, the Confederate Constitution had written in that there would be no bills financially supporting industry.

If we want a better Constitution, we need to adopt the South’s. (No, slavery won’t play a role, Delta Alphas)

Tim Burton on October 22, 2009 at 12:22 PM

“Hey, you. Yeah you, the last truly free thinking university, stop teaching logic or we’ll prevent any student accepting government loans to attend. We don’t want people who can think logically, it’ll screw up our ‘Utopia.'”

TQM38a on October 22, 2009 at 12:23 PM

However, that large increase in demand created pressure on prices, too. As more students flooded into colleges and universities, tuitions increased as supply strained to meet the demand.

One thing to make clear…the increase was partly because the money was there…the increase of “public” money, means they could increase tuition…supply and demand, supply of money increased, demand increased, so the tuition increased.

right2bright on October 22, 2009 at 12:26 PM

It commits somewhere between $100 million and $750 million to develop and produce online curricula for both high schools and colleges.

Can you imagine the type of curricula Obama’s people will develop? Nothing but Marxism.

mydh12 on October 22, 2009 at 12:29 PM

Compulsory volunteerism factors into this eventually, you wait.
Akzed on October 22, 2009 at 11:51 AM

That is coming but I read somewhere there is a policy being proposed, maybe already passed that allows a student to have their college debt cleared if they take a government job and hold it for 10 years.
That will draw 10’s of thousands into Fed jobs as is the intention.
Consider a 120k student loan debt, that’s $1,000 per month for 10 years added to your salary for all intents.
By age 32 the debt is paid and they can move out from under the gov wings and begin their lives.

FireBlogger on October 22, 2009 at 12:39 PM

It’s nothing but blue on blue. Nobody right-of-center can come 10 miles near the curriculum since the 70s.

Aristotle on October 22, 2009 at 12:44 PM

Live, Liberty, Education, Health, a primary Residence, and the pursuit of Happiness.

NickelAndDime on October 22, 2009 at 12:46 PM

I can’t get the link to the AIP column to open, so maybe you already mentioned this, but there is also something in the works to relieve the loan debt of individuals who have 10 years of public service. It’s a little more complex than that, but it effectively puts taxpayers on the hook for government employees school expenses.

BadgerHawk on October 22, 2009 at 12:47 PM

Itchee Dryback on October 22, 2009 at 12:08 PM

Great, now I have to add more whiskey to my coffee…and it’s raining here in Iowa–great :(

lovingmyUSA on October 22, 2009 at 12:53 PM

Why does a bankrupt government need to spend hundreds of millions of dollars to duplicate what already exists in the private sector? Perhaps the same reason they needed to seize the student-lending process. Congress and this administration want to control the flow of funds to schools and the choices made by students and administrators alike. Just as with the more massive interventions in energy and health care, the motive is power. This is the reason that the founders, in their wisdom, limited Congressional and executive jurisdiction in the Constitution.

The health-care and cap-and-trade debates deserve our close attention, but let’s not let this one slip through our fingers.

Ed, the last words of your column leave me shuddering…This is “stealth warfare” at least–and nobody knows…
*Starts muttering to herself, as she adds whiskey to her coffee…

lovingmyUSA on October 22, 2009 at 1:00 PM

Question: Did anyone buy stock in the liquor industry after the election???

lovingmyUSA on October 22, 2009 at 1:01 PM

Well, the Confederate Constitution had written in that there would be no bills financially supporting industry.

If we want a better Constitution, we need to adopt the South’s. (No, slavery won’t play a role, Delta Alphas)

Tim Burton on October 22, 2009 at 12:22 PM

Something like that; the US Constitution with a few alterations here and there – being more specific about the concrete limitations of the federal government, for sure, specifically disallowing dual citizens from being eligible for any elected/federal positions (ever for Presidency, Supreme Court, Federal Judiciary, etc. and temporary for COngressional positions) … More important, though, is to adopt only a subset of US federal rulings, leaving aside all of the destructive decisions on the Commerce Clause, the denigration of states’ rights, private property attacks by the SCOTUS, …

progressoverpeace on October 22, 2009 at 1:07 PM

Nope, and the way things are going, I regret not doing so.

capejasmine on October 22, 2009 at 1:08 PM

The health-care and cap-and-trade debates deserve our close attention, but let’s not let this one slip through our fingers.

I agree..but I think the education system is lost. There is not time to influence that right now. If health care and Cap N Trade become binding, its game over. We’ll all be just another brick in the wall for decades to come.

Itchee Dryback on October 22, 2009 at 1:18 PM

This issue is a tough one for me. I have two in college. One goes to a private Christian school and though he received alot of grant and scholarship money, he still had to take out loans for room and board. The other attends a CA state school. CA has no money for their own students so out of staters pay full freight. It’s costly, but we wanted her to go where she wanted and where she would thrive. It is taking thousands in loans. I am determined to pay them off quickly, but we needed the loans to pay up front.

The truth is, they have us by the short hairs on this. Private loans run between 10 and 12%, government Perkins and Parent Plus about 7.9%. So, I don’t know, as I said, this is a tough one for me.

Jvette on October 22, 2009 at 1:24 PM

I’m glad to see this covered. Most people I’ve talked to don’t understand this as another government takeover the same way they think net neutrality = freedom of speech. I’ve had few sources to back up my assertion that it is, indeed, another takeover by the government so thank you Ed for this column.

Question: Did anyone buy stock in the liquor industry after the election???

lovingmyUSA on October 22, 2009 at 1:01 PM

Smart idea. It’s been hard not to get wasted every day since we went through the looking glass.

NTWR on October 22, 2009 at 1:29 PM

Smart idea. It’s been hard not to get wasted every day since we went through the looking glass.

NTWR on October 22, 2009 at 1:29 PM

I don’t get wasted, but it helps my days off (work nights) go better when I read the news–HA news that is–don’t buy fishwrap anymore. Watching our country go down the toilet is hard to take straight.
(Since maryjane and I are no longer the good buddies we were in my youth, I find a certain solace in coffee with whiskey…)

lovingmyUSA on October 22, 2009 at 2:02 PM

Thomas Sowell explained it perfectly in his book “Economic Facts and Fallacies”… when everyone can buy something (with cheap money that they are “entitled” to) whatever they are buying will INCREASE in price!

Colleges have absolutely NO incentive to cut costs, run efficiently and offer a superior education when the Gov’t is making sure that everyone can get HUNDREDS OF THOUSANDS OF DOLLARS in student loans!

The Gov’t is creating indentured servants who graduate with a mediocre education at best and an enormous burden of debt.

I am already hearing advertisements for gov’t agencies who are willing to forgive student loan debt in exchange for “service” from the indebted citizen.

Think this through, folks!!

Easy money is exactly what caused the debt tsunami that is destroying our economy right now… except you cannot discharge student loan debt in bankruptcy.

The gov’t will haunt you until you die if you do not pay your student loans back. Many people will have no choice but to work their debt off by “serving” the gov’t.

And how will private business compete for new hires when the gov’t is willing to hire them and forgive all that debt for 10 years of their life?!

Easy student loans for everyone is NOT a good thing.

People should have to save up money or work to pay for education, just like they do for every other thing they buy in their life (or like they had to do before everything became an entitlement).

Schools would have to lower their prices and offer a better product if people had to pay out of pocket for their education.

The gov’t is blowing up a bubble in the student loan market and it will not end well.

Wake up.

painesright on October 22, 2009 at 2:10 PM

Another reason for the increased cost of higher education are additional coursees in the fundamentals of math, language and writing skills. College classes are full of people who can’t write an essay, speak English correctly, my personal favorite is “I be going”, or understand basic math principles ie; multiplication and division. Another complete failure of the public school system and entitlement.

elclynn on October 22, 2009 at 2:14 PM

College classes are full of people The White House is headed by a person who can’t write an essay, speak English correctly,

The Precedent has yet to learn how to use the indefinite article correctly. “Aaay illegal …”, “Aaay enormous …”, …

my personal favorite is “I be going”, or understand basic math principles ie; multiplication and division.

“profit and earnings ratios” – The PRecedent never learned that ratios are NEVER translated to English with “and”. That’s something that any normal 8th grader knows … but not The Precedent.

Another complete failure of the public school system and entitlement.

elclynn on October 22, 2009 at 2:14 PM

This failure, in The Precedent’s case, is due to affirmative action and the Indonesian school system. The public school system’s failure is in generating enough idiots to vote for the imbecile.

progressoverpeace on October 22, 2009 at 2:19 PM

Am I the ONLY one that remembers WHY private lenders were brought into the student loan program to begin with?

Does ANYONE remember the hundreds of Universities that were STUFFING seats in order to get federal student loan money?

Does anyone remember the lost billions from this crooked scheme? A scheme so insidious that NO university ever paid back ANY of the money it STOLE from the federal government? A system so corrupt that not even 1 university chancellor was fired over this corruption? Think about it, the University steals money from the federal government that grants other money to those same universities. The universities use the money to jack up ‘costs’, like salaries and benefits of their staff. It is all for the CHILDREN! Even the ones that were NEVER in the classrooms!

This ‘new’ federal approach will simply recreate the UNACCOUNTABLE theft of taxpayer money by the CORRUPT TEACHERS and ADMINISTRATORS in the university systems!

Freddy on October 22, 2009 at 3:46 PM

….why do we need the federal government to develop parallel curricula at all?

Can any one answer this?

nolapol on October 22, 2009 at 3:55 PM

It bugs me when the Republican candidates claim to support education by throwing more money at it. I think to myself, why don’t they apply the principles they supposedly follow to this area too? But, they end up being 90% better than the other guy, so we keep eating 10% poison in the best of times.

AnotherOpinion on October 22, 2009 at 4:03 PM

Ed, one interesting point about your argument. As someone in my office pointed out, it’s really always been a single payer system fronted by banks. Which makes your argument even more valuable as a comparison to our health care debate.

therightscoop on October 22, 2009 at 4:31 PM

Of course, we already have people producing these programs at all levels of education; why do we need the federal government to develop parallel curricula?

The International Baccalaureate is not leftist enough?

IB: The Boston Tea Party was Terrorism

PattyJ on October 22, 2009 at 4:59 PM