The GOP’s war on the free market on behalf of special interests continues:

When Ohio Congressman John Boehner recently told a gathering of student loan bankers that he had some “tricks up my sleeve to protect you,” he wasn’t talking about new tricks.

He was talking about the oldest trick in the book: “Protecting” business people from competition and innovation. Stopping consumers from getting lower rates and better terms for their student loans.

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The student loan business is now one of the most profitable in America, says Fortune Magazine. And it did not get that way because student loan bankers are smarter, better or less expensive than bankers in other industries.

It is more profitable because they have more protection from competition. And now Boehner, head of the House Committee that oversees student loan legislation, is promising them even more protection from the one force that drives down prices, improves service, and stimulates innovation: Competition, of course. Which in the student loan business in almost non-existent.

That is the way it was until earlier this year, when in January, the Department of Education ruled that borrowers looking to reconsolidate their student loans could sidestep the longstanding anti-competitive rule against doing so.

It was cumbersome, but effective. Borrowers had to use a two-step process of reconsolidating into the federal governement’s Direct Loan Program, then reconsolidating again with a private lender offering better rates. Before then, borrowers were locked in to their current lender no matter what other lenders offered them a better deal.

In May, the Department of Education set aside another longstanding anti-consumer policy by ruling that borrowers who are still in school could convert their variable rate student loans into fixed-rate consolidaton loans before rates increased in July. That way they could take advantage of historically low interest rates, much as millions of other borrowers do with their home loans.

While borrowers celebrated, consumer bankers plotted.

Enter Boehner. Buried deep in legislation to raise prices on student loans are provisions that will largely outlaw the reforms that introduced so much competition into student loans earlier this year.

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Columnist Dick Morris calls the anti-refinancing scheme an “obnoxious .. ripoff.” Terry Savage, the financial columnist of TheStreet.com, says there is “no way” borrowers should support this plan.” The New York Times calls it “Robbing Joe College to Pay Sallie Mae,” the country’s largest student loan provider. The Times Union of New York, calls plans to outlaw refinancing a “student loan shame.’

The student loan business is government ineptitude in action. In deciding that “everyone who wants to should be able to go to college,” the federal government distorted the college education market. With all that “free money” available, colleges and universities could jack up tuition prices with virtually no correction. Everyone wanted to go to college. And everyone could find financing to do so. So we’ve had a 25-year (at least) seller’s market. Which means that many of the people who likely could have afforded college on their own before all of this happened now have to take on debt. Oh, and because everyone’s now getting a bachelor’s degree, the degree itself is devalued. It’s what a high school diploma once was. And so we’ve created a generation of young adults saddled with massive student loan debt (disclosure: I’m one of them).

To make matters worse, government then grants monopolies on the lending side, and puts all sorts of restrictions on refinancing. It amazes me that if a private institution wants to let me consolidate my private and public loans by paying them off, then taking me on as a client on terms more preferable to me — a transcation that would benefit both me and the lender — the government won’t let it happen.

The provision Boehner slipped into the education bill as a sop to the student loan industry didn’t kill off any idea so radical as to let debtors and lenders transact as they please without government interference. The subtle shifts in regulatory policy Boehner lopped off at the knees would merely have made life for some student loan debtors a bit more manageable. But Boehner would have nothing of it.

Thanks, GOP!

This entry was posted on Thursday, December 22nd, 2005 at 4:42 pm by Radley Balko and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.