Obama Sort Of Weasels Out Of Student Loan Proposal

(MoneyWatch)  Sallie Mae the government subsidized student loan provider had been facing a loss of revenue under an Obama Administration proposal to eliminate subsidizing private companies to make student loans. Rather the government would return to the days where itself issued the loans. Late last year the company had tried to fight this proposal by making promises to increase U.S. jobs as well as getting their local Congressman and Senators to attempt to remove the proposal from legislation. The company will lose a significant revenue stream if this change goes through.

The Federal Government though issued contracts to four companies yesterday to provide loan servicing for the existing student loans as well as future ones. Sallie Mae was selected as one of these companies. The money from this contract will make up for that lost by not being able to originate the loans as it used to. In this way Obama can still say he has moved the actual loans back to the government which in his proposal will be cheaper to manage and perhaps have lower rates. Of course this won't be known until the program is carried out for a few years. At the same time by allowing the private companies to participate in the actual servicing of the loans these corporations maintain their viability and role in the business.

In a way this is a weasel as one could have assumed the original proposal was to move the whole business back to the government and eliminate the role of any private corporation. Remember in many ways the Obama campaign and governance has been "contractor bad" and "government good" to paraphrase Orwell. This is a half measure as there really is no reason the loans could not be serviced by the Department of Education.