Don't Call It a Nationalization

Posted: Apr 02, 2010 8:37 AM
...but don't call it a win for conservatives either.

We're seeing the "socialism" charge leveled at the government's "takeover" of student loans. Jacob Levy notes that this isn't entirely true, and that conservatives might actually be cheering the removal of a significant moral hazard:

Notice that banks would be free to continue to make student loans... All they're losing is the ability to make publicly subsidized student loans in the future.

In the last two weeks, I haven't seen any Republican official or Republican-leaning intellectual make the slightest reference to the problems with a system in which private lenders make risk-free profits by lending on the back of a federal guarantee.

I generally agree that public-private "cooperation" will result in the worst parts of capitalism and socialism with none of the benefits, and that might have been a major contributor in the student loan market.

In the case of student loans, however, I'm not sure that the government throwing their hat in the ring wholesale is the best idea. We'll need some cold-hearted utilitarians running this program if we don't want to see it tailspin into a drive for "college education for everyone."

While I'd believe that our anonymous gray-suited executive agency bureaucrats might be up to this task, I don't trust the jokers down the street on Capitol Hill. It would be incredibly easy for a social-minded Democrat to invite underpriviliged ambitious youngsters with broken dreams up to the Hill to help in a push for an "Education Reinvestment Act" that demands lower Federal lending standards, completely crowding out the private market and leading to taxpayer-subsidized universal college education.

Not that this might not have occurred under the previous student loan regime. But this seems like something with a higher probability of happening when we have our benevolent elected representatives more directly involved in running the show.

Hat tip: Tim Cavanaugh