Let's Just Use Reconciliation For Everything!

Jillian Bandes | March 12, 2010 10:38 AM

A proposal that's up for grabs in the Senate would prohibit the private sector from making any education loans whatsoever, removing this area of the market from private control. But sixty votes are needed in the Senate to allow this proposal to pass, and Harry Reid doesn't have them.

So Reid and Obama are considering using reconciliation to pass the education bill as well as the health care bill.

There's something of a case to be made financially for the government take-over of private educational loans, if you use the warped parameters set by Democratic accounting standards. Since the student loan industry is so highly regulated by Uncle Sam -- to the point that the government suffers a loss if a student defaults on a private loan -- having the government take over the loan actually might save the government money.

The free-market solution to this might be to remove all the regulations on private student loans, and let the market make the decisions. But Democrats prefer to have the government take over the entire industry. This will ostensibly help the government save money, help students because they will have easier access to loans, and help society fund higher education.

But the ramifications of artificial subsidies for higher education never enter the discussion. What if the higher education bubble bursts? What if a student would be better off not going to college? What about the U.S. taxpayer, who is being forced against his will to pay for the education of his neighbor?

The bill passed the House last year, in a move that the New York Times characterized as a victory over "an intense lobbying effort by the for-profit lenders." The NYT says the insurmountable 60-vote threshold in the Senate was because of "the industry's allies in the Senate." While it's true that legislators from states where student loan companies are located are fighting this bill, there's a bigger principle at stake: propping up an industry that, like all other industries, is better left in the hands of the market.