AJOC EDITORIAL: House Dems should send student loan bill to DC
Last week it was noted in this space that there have been several not-so-pleasant and costly surprises associated with the implementation of the Affordable Care Act, aka Obamacare. This week, state Rep. Les Gara, D-Anchorage, reminded us of another one.
Gara and his fellow House Democrats have introduced a bill, HB 17, that calls for the reducing of principal on student loans for Alaska residents by as much as 2.5 percent per year depending on the amount appropriated by the legislature to fund it.
Gara has been banging this drum for a while now over the past two years, with his go-to quote being to point out that the difference in interest rates between a student loan and a car loan.
“Alaska Student Loan Corporation loans have been at seven percent and above in recent years when you can get a used car loan for less than three percent,” said Rep. Gara. “That people who want to better their job prospects through college education or job training have to pay twice the rate of a used car loan seems wrong.”
Awww, it “seems wrong.” Nothing sums up the typical emotion-based appeal of legislating we see so often, whether it is student loans, gun control or health care.
If you don’t support Gara’s bill, you probably don’t care about students, only greedy lenders. If you think Alaska’s oil taxes are uncompetitive, you must want to give away “our oil.”
If you don’t support reactive and ineffective gun controls of the sort floating around Vice President Joe Biden’s resodded dome, you must hate children. And of course, not supporting Obamacare pretty much means you want kids with Autism living on the streets.
Or so we’ve been told.
Gara should know very well why the cost is going up for student loans offered by the Alaska Student Loan Corp., which funds the Alaska Commission on Postsecondary Education. If he doesn’t, it could only be called willful ignorance.
The reason costs are going up is because back in early 2010, Congressional Democrats couldn’t get the books to balance for Obamacare even with the cooked-up assumptions they were sending to the Congressional Budget Office.
In order to back up the now laughable claim that Obamacare would reduce the deficit, the Democrats in D.C. took over the student loan business as part of the bill and claimed it would save $67 billion over 10 years.
Before Obamacare passed, Rep. Gara, the Alaska Student Loan Corp. offered a variety of incentives and reductions that, if fully taken advantage of, could reduce the interest rate on a student loan to as low as 3.35 percent.
In 2009, the last year Alaska Student Loan Corp. could offer traditional loans, more than $4 million in benefits were distributed to student borrowers through waived origination fees, and reductions in interest rates and principal balances.
And as for those subsidies to student lenders that were cited as a cost saving of the federal takeover, well, it was one of the biggest lies among many told in the selling of Obamacare.
Between 2008 and 2009, the Alaska Student Loan Corp. rebated nearly $7 million back to the U.S. Department of Education based on the dramatically reduced interest rates set by the Federal Reserve at the onset of the 2007 recession.
Now that the federal government has taken over direct student loans, the only product the Alaska Student Loan Corp. can offer is the Alaska Supplemental Education Loan, which must be financed through the private capital markets where tighter credit standards apply, the federal guarantee is gone and an unsecured loan simply cannot be obtained at the same rate as a secured loan for the used car Gara keeps talking about.
This is how Diane Barrans, executive director of the Alaska Commission on Postsecondary Education, described the student loan business before Obamacare:
“We used capital markets to finance the loans, the federal government underwrote it, we provided local servicing, and when we had an opportunity to provide discounts on those loans we provided discounts and rebates to allow borrowers to benefit,” she told the Journal back in 2010.
Here’s another unpleasant fact from the government takeover of the student loan business: it has a disproportionate impact on middle class borrowers who would have qualified for the various incentives offered by Alaska Student Loan Corp.
Under the federal takeover, while the government is borrowing on three-month Treasurys at less than a half-percent, it is charging middle class borrowers 6.8 percent on direct loans and more than 8 percent on consolidated loans.
The Alaska Student Loan Corp., and other entities like it around the country in Montana, Wyoming and North Dakota, would have passed those savings on to their borrowers.
That arrangement is over, and the DOE is pocketing the cash instead.
This is what Wyoming Student Loan Corp. CEO Phil Van Horn told the Journal in 2010: “Those of us, the baby boomers, can tip our hats to the students who are going to subsidize our health care.”
If Gara and his fellow House Democrats really want to find someone to blame for the cost of Alaska student loans going up, they need look no further than their counterparts in D.C. who rammed through Obamacare and used America’s college students to pay for it.
Andrew Jensen can be reached at [email protected].