Republican Student Loan Bill Is a Handout to the Loan Industry

By Casey Quinlan, Think Progress

05 October 15

 

en. Kelly Ayotte (R-NH) and Sen. Shelley Moore (R-WV) introduced the Student Loan Relief Act of 2015 on Thursday, which would let borrowers refinance their federal student loans in the private market. The senators argue that if their legislation passed, students would be able to benefit from lower interest rates.

“Our legislation would give borrowers flexibility, allowing them to save money by refinancing their student loans the way they would refinance a mortgage. And to better support our younger generation of workers, this bill would allow employers to help qualified employees pay off their student loan debt with pre-tax dollars,” Ayotte said in her announcement about the introduction of the legislation.

Despite the framing of the legislation as beneficial to students, it’s really the private market that has the most to gain from this bill. This bill would also provide a loan guarantee for refinanced loans. To better understand why Republican lawmakers are pushing for this bill, it’s important to remember that in 2010, The Affordable Care Act contained a reconciliation bill that meant all student loans would originate with the federal government compared to the old system, when 55 percent of those loans originated with banks. The federal government used to pay the banks more than the cost of the loans, which meant the change would actually save taxpayer money.

When the bank-based student loan system ended in 2010, most conservatives opposed efforts to change the system, even though it would cost far less if the government took on those responsibilities. Several institutions that benefitted from the old bank-based system were allowed to become student loan servicers after the change, but this bill would allow them a way back into issuing loans.

Although many large banks left the private student loan market after the financial crisis, plenty of politically connected organizations such as state agency lenders and nonprofits have fought to stay in the market. One example is Granite State Management, a New Hampshire nonprofit organization that does student loan servicing. GSM’s primary income is through its student loan servicing, but they would make much more through issuing loans. GSM’s status as a charitable organization was challenged by the City of Concord in 2013 but the court ultimately held up its status, saying that “servicing and administration of loans is not GSMR’s charitable purpose, but a means to achieve” the purpose of its mission to “providing low cost or alternative financial assistance to eligible students and to parents . . . and of supporting the development of higher education and educational opportunities.”

“What they’re trying to do is go back to the bad old days of a bank-based loan system. They want private banks to take over the loan and take none of the risk. So what they’re saying is, ‘Oh, it will be good for students because they will get a lower rate from the private market,'” said Ben Miller, senior director for postsecondary education at the Center for American Progress. “But really what’s going to happen is that the private market is going to get a giant windfall and pass along a tiny slice of it to the students in the form of a lower interest rate … You would hope to do a lot more by spending the exact same amount of money and just cutting their interest rates. There is no value add from the private market.”

Miller said that these organizations were allowed some protections after the Health Care and Education Reconciliation Act of 2010 ended the Federal Family Education Loan Program, through which which nonprofit and state agency lenders issued loans and borrower outreach programs, Congress allowed these groups to service loans so that they could remain involved in the student loan market.

In 2010, Sen. Tom Harkin (D-IA) spoke about the importance of keeping these organizations involved in the student loan market:

These changes will also upgrade the customer service borrowers receive when repaying their loans. The legislation will also maintain jobs by ensuring a robust role for the private sector, allowing lenders and not-for-profits to contract with the Department of Education to service Direct Loans.

“They weren’t based by the whole faith and credit of the state but they were quasi-state agencies, and so when this change went through in 2010 they were given a giveaway, where they said you can stay in the loan program as a servicer,” Miller said. “So they already got this sweet grandfathered deal and this would be another example of catering to do with local interests … Student loan servicers get three-fourths of the student loan volume every year. That’s more than they actually used to get.”

These organizations are still hoping to increase their share of new student loan volume, however. In July, The White House sent a letter to Sen. Thad Cochran (R-MS), chairman of the Senate Appropriations Committee, highlighting several problems the administration had with the fiscal year 2016 Labor, Health and Human Services, Education, and Related Agencies appropriations bill. One of those criticisms was of a rider that would benefit nonprofit student loan servicers.

Shaun Donovan, director of management and budget for The White House wrote, “The bill also includes highly objectionable language that would allocate 50 percent of new student loan volume to not-for-profit loan servicers, violating the terms of the current performance-based contracts which allocate volume based on servicer performance in keeping borrowers current on their student loans. This provision would prioritizes special interests over borrowers’ access to high-quality loan servicing.”

Miller isn’t optimistic that nonprofit student loan servicers would get the benefits Ayotte and Moore’s legislation would provide, because such a bill would require reversing the department’s 2010 decision and actually cost more money than keeping the current system.

“As much as many people would like to generate bad policy proposals that funnel taxpayer dollars into the private sector, it costs money and there isn’t money to be spent,” Miller said. “So I think that if they found the money to do it they would have support, but the reason why this change was made in the first place was because it was cheaper for the government to make the loan than have the bank do it. Undoing that costs money.”

When Did Republicans Become Obsessed With Reagan?

By Mark Fahey, CNBC

05 October 15

 

epublicans want you to know that they adore Ronald Reagan.

In the September debate, the presidential candidates stood in front of Reagan's presidential plane at his California library, telling heartwarming tales of how they'd voted for Reagan as a teenager (Chris Christie) and had always admired his lovely smile (George Pataki). Ben Carson credited Reagan with converting him to the Republican Party, and Jeb Bush invoked the ex-president while defending his wife from Donald Trump.

According to a Big Crunch analysis, the 40th president's name was mentioned by the candidates and moderators 64 times. Along with the 14 mentions in August, that's nearly as many mentions as in the entire 2000 primary season.

Reagan worship may be becoming more common, but it's nothing new. The Gipper has been brought up in every Republican primary debate since 1999 without exception, and there is no reason to think he won't play a role in CNBC's GOP debate Oct. 28 as well.

But why? The other side has no such obsession: In the 29 Democratic primary debates since 1999, Franklin Roosevelt, John F. Kennedy and outgoing President Bill Clinton were together mentioned only 97 times — in the 48 Republican debates in that time, Reagan was mentioned more than five times as often.

Reagan's actual presidency was not nearly as well-loved by most Americans. Reagan's eight-year approval average of 53 percent puts him behind not only FDR, JFK and Clinton, but also below the average for all presidents since Gallup polls began.

In 1986, nearly 1 in 3 Americans thought Reagan should consider resigning before his term was finished, and even politicians — including Mitt Romney — who would later play up their love for the movie-star-turned-politician distanced themselves back when it seemed that his presidency might be a failure in the history books.

"He will never again be the same Ronald Reagan he was before he blew it," said conservative Rep. Newt Gingrich in 1987 after the Iran-Contra scandal, which revealed that the administration was exchanging arms for hostages in Iran and using the proceeds to fund Nicaraguan rebels, all prohibited by Congress. "He is not going to regain our trust and our faith easily."

But Gingrich, it seems, was wrong. He would later talk up his Reagan connections with the best of them. While surveys of presidential scholars and historians by Siena College from 1982 to 2010 consistently characterized Reagan as a middling president, nearly 20 percent of Americans now think Reagan was the nation's greatest president — beating out Abraham Lincoln, Clinton, JFK and George Washington. Reagan was mythologized while he was still alive.

It's not unusual for presidents to be more popular after they leave, but Reagan's jump is still impressive. Out of nine presidents compared by Gallup, Reagan's average approval jumped the most after leaving office — 11 percentage points — aside from Kennedy (13 after being killed in office) and Ford (13). Looking at only the most recent polls, Reagan has now gained 21 points — far more than any other president measured.

Why do Americans remember Reagan so much more kindly than history suggests they should? One reason may be that Reagan was diagnosed with Alzheimer's disease after leaving office, so politicians and journalists who had once been critical of his legacy were less likely to point out his flaws.

"Reagan's unprecedented condition created an environment when sharp criticism of things that went wrong in the White House during the 1980s was now rendered, in the new terminology, politically incorrect," political reporter Will Bunch wrote in his book about the mythologized Reagan.

The new Reagans

Reagan's disappearance from public life nearly six years after he left office also made it easy for conservatives of all stripes to claim his mantle. As late-night host Stephen Colbert recently pointed out to candidate Ted Cruz, Reagan's record as president deviates significantly from both his own rhetoric and the policy positions attributed to him by modern candidates.

That's why today you hear about the Reagan who instituted a massive tax cut in 1981, not the Reagan who, when revenue from supply-side economic theories failed to materialize, reversed course to sign the largest peacetime tax increase in history in 1982, and then to raise taxes again in 1983 and 1984.

Candidates will talk about the Reagan who cut government regulation, but not the one who increased the size of the federal government and the national debt. We hear about the Reagan who demanded that Mikhail Gorbachev "tear down this wall" and called Soviet Russia an "evil empire," but not the Reagan who later met diplomatically with Soviet leaders to form the foundation of nuclear disarmament.

Perhaps the main reason that Reagan is mentioned so frequently may simply be because, as Bill Whalen of the Hoover Institution wrote before September's debate, while Democrats had Clinton and Barack Obama to fill the void after Kennedy, Republicans have had no recent candidates who can match Reagan's charm.

But pretending to be an imaginary version of Reagan does the candidates no services — no one really believes that Romney or Donald Trump are Reagan reincarnated, and many voters are too young to be nostalgic about Reagan anyway. According to data shared with CNBC by consumer data company Resonate, 7 percent of people who said that they vote Republican weren't even alive when Reagan left office, and more than a third of Republican voters weren't of voting age.

Whalen's advice to the debating candidates: "Like Reagan and his political journey from Trumanite to Thatcherite, dare to show evolved thought. Be bold enough to take the GOP in directions beyond its present conservative straightjacket."