No! No! No! STOP Taking Over Private Industry! House Votes to Cut Private Lenders Out of Student Loans

In Congress on September 17, 2009 at 7:40 pm

While we’re all distracted by Jimmy Carter’s accusations of racism, the Obama administration and a Democrat controlled Congress continue to saw yet more legs off the table of our free market economy.

Add to the takeover of banks and the auto industry the expulsion of private lenders from the student loan market. From WSJ:

WASHINGTON — The House of Representatives approved legislation Thursday that would effectively end private-lender involvement in the student-loan market, establishing the federal government as the sole provider of college loans.

Under the legislation, all lenders would be cut out of the market for originating loans. There would still be a role for private banks and lenders to bid for a limited number of contracts to service the loans after they are made by the government.

For companies like SLM Corp., better known as Sallie Mae, the proposed changes are already having an impact. This week, Fitch Ratings downgraded Sallie Mae to triple-B-plus status and called its outlook negative.

Sallie Mae’s shares were recently trading down more than 2% at $9.

Rep. George Miller (D., Calif.), claims that this move will cut out the middle man and funnel college funding “directly to dorm rooms.” And yet:

Having lined up additional contractors to handle the anticipated increase in direct-loan volume, federal officials say they are prepared.

Does anyone think that the government can contract out loan services in such a manner that the process is more efficient than private industry can? I didn’t think so.

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