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Student Loan Reform: Best Progressive Victory of 2010

Looking back on the year, I believe that the best victory for progressives was student loan reform, which was passed as part of the reconciliation measure. While not as large in scale as some of the bills passed by this Congress, it still was a substantial measure that ends over $60 billion in government waste.

What makes this victory the most important from my perspective is that it is the closest to a truly uncompromised progressive victory that we have seen in the last two years. This was a simple battle of the working class against massive corporate interests where regular Americans finally came out the victors.

On multiple levels, this provision achieved several of what I consider to be some of the most important defining principles of old school progressivism:

  • Ending massive corporate welfare– It stopped a completely wasteful program that had the government guarantee “private” loans. This had allowed several large businesses – including Bank of America, Wells Fargo and Wachovia – to make huge profits at the expense of the public.
  • Reducing corruption – Eliminating corporate welfare is always a small step toward ending political corruption in Washington. It helps stop the endless cycle of companies needing to spend millions on lobbying to keep their billions in government handouts flowing.
  • Good stewardship of public funds – It took a government task and made it more cost-efficient. Building trust in government’s social safety net requires progressives to make sure that the government is the best possible steward of public funds that it can be.
  • Sharing prosperity– Much of the money saved by ending this corporate welfare now is going to be re-purposed to fund Pell Grants that help low income students obtain higher education.
  • Providing greater opportunity– Progressives should be about more than just providing a safety net to those in trouble, we also should provide ladders to enable individuals to achieve greater success for themselves. There is no better tool than education to do that.
  • Investment in our future – Increasing the general availability of eduction for Americans and providing more people with opportunity to achieve greater success will, in the long run, improve our nation’s future.

A brief history of the problem

The Federal Family Education Loan Program (FFEL) was a classic lemon socialism program. It provided a nearly total government guarantee for “private” student loans. If the loans did well, the large financial companies got the profit, if they didn’t preform, the government socialized the loses. These broken incentives spurred risky behavior from the companies.

President Clinton took a step to reduce this problem by giving students the option to cut out these totally unnecessary and wasteful middlemen to get loans directly from the government through the William D. Ford Federal Direct Loan program. Over the years, this “public option” proved to be superior and dramatically cheaper for the government.

As if FFEL weren’t already a horrible enough corporate welfare program, the market for resale of FFEL loans dried up during the financial meltdown. So, in 2008 Congress passed a multi-billion dollar bailout of the program that made the government the buyer of last resort for these “private” loans the government could just as easily have made directly to the students for much less.

Passage of student loan reform

Much to his credit, President Obama saw what a horrible boondoggle this was and pushed reform that would totally eliminate the FFEL and use the savings to increase Pell Grants. He made sure provisions for student loan reform were included in the reconciliation instruction because there was no way to get 60 Senate votes for ending the FFEL.

Despite Obama’s support for the general idea, its passage was not assured because his administration was more concerned about using reconciliation to pass health care reform. This created room for lobbyists to push for “compromise” that would cost the government dearly or even completely kill reform this year.

With the focus on health care reform, student loan reform was almost dropped entirely from the reconciliation bill, but thanks in part to public pressure, in the end it was included without any major carve-outs by the bank lobbyists. This was a rare total loss for lobbyists fighting against the public.

While it is unfortunate that Democrats decided to use some of the savings from ending FFEL to pay for changes in the health care law instead of investments in education, the result was still elimination of a horrible corporate welfare program with much of the savings reinvested in smart progressive projects. On an economic front, it was one of the few totally progressive long-term achievements for Democrats in a year otherwise dramatically tainted by massive corporate carve-outs.

I’m proud of the role FDL played when our “Students, Not Banks” campaign helped make sure uncompromised student loan reform was passed this year. I also think President Obama, along with Rep. George Miller (D-CA), deserves a lot of credit for this great achievement. This was a case of Obama actually fighting directly against corrupt corporate “stakeholders” instead of trying to compromise with them. Better still, he directly fought against corporate interests to help regular Americans. Looking back at the year, I wish progressives had been given the chance to have more clear fights like this one.

Please support FDL and victories like “Students, Not Banks” with a tax-deductible contribution to the FireDogLake Writers Foundation – even $25 will go a long way.

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Jon Walker

Jon Walker

Jonathan Walker grew up in New Jersey. He graduated from Wesleyan University in 2006. He is an expert on politics, health care and drug policy. He is also the author of After Legalization and Cobalt Slave, and a Futurist writer at