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Obama's Higher Ed Posturing


Wall Street JournalJuly 26, 2012 

Concerns about intellectual consistency have rarely hobbled Democrats in pursuit of ideological imperatives like universal access to health-care—or higher education. The latest example: A new report by the Consumer Financial Protection Bureau and the Department of Education that raps private lenders for having made college both too accessible and not accessible enough.

According to the report, between 2005 and 2007 the private student loan market resembled the subprime mortgage market in that the "market doubled through a combination of over-borrowing and a marked decline in credit standards. . . [which] created consumer risks at the same time that they created risks to lenders." Bad banks.

But the report later boasts that government loans, which account for 85% of outstanding debt, are superior because they aren't based on any "traditional measures of consumer creditworthiness"—like the borrower's ability to repay—and because they are backed by the full faith and credit of Uncle Sam. The irony of the government's comparable role in the housing crisis seems to have eluded the authors.

The report's solution to the purported "subprime" crisis in student loans is for Congress to require private lenders to steer more student borrowers to federal loans that offer lower interest rates (namely because they don't account for risk) and more forgiveness options. For instance, students who work for the government can discharge their remaining debt after 10 years. The Obama administration has also made it easier for more students to wipe away government debt via income-based repayment plans.

Buried in the report is also a thinly veiled threat against private lenders, which the authors allege could be violating fair lending laws by tightening underwriting standards too much. By setting cohort default rates—a measure that the administration proposed using to determine for-profit school eligibility for federal student aid—too low, lenders may be restricting access to minority borrowers who attend colleges with higher default rates.

The Obama administration's knock on private lenders dovetails with its assault on for-profit colleges. By their reckoning, both are exploiting students who'd be better served by government. In sum, the White House wants to make college more accessible—it just doesn't want the private sector to play any role.