July 9, 2009
"It is truly an entrepreneurial kind of system, where there is no coercion in the system. And it is based on market forces, if you will. If they like us, they will join us and stay with us; if they do not, they do not have to. I think that is the most important thing."
-Deputy Education Secretary Madeleine Kunin, Discussing competition between the government-run Direct Loan program and private lending programs that President Obama now wants to abolish, Senate Labor and Human Resources Committee hearing, March 30, 1995
As Congress debates health reform, many Democrats insist upon the creation of a so-called "public option" as an ingredient of any reform-and President Obama recently reiterated that view. Supporters of such a government-run health plan argue that it could compete on a "level playing field" with private health coverage in a way that brings down costs However, a history of federal involvement in student lending shows that a "level playing field" between the private sector and the government soon leads to a desire for government domination:
- The Federal Family Education Loan Program (FFELP), first established as part of the Higher Education Act of 1965, has provided higher education funding for tens of millions of Americans. Since its creation, the FFELP program has disbursed more than 200 million loans to college students totaling nearly $800 billion.
- In 1993, a Democrat Congress passed, and President Clinton signed into law, legislation permanently establishing the Direct Loan program-a government-run system that Democrats intended to take over the entire student loan marketplace. When Republicans regained control of Congress in 1994, the Clinton Administration shifted its focus from abolishing FFELP entirely towards the promotion of a purportedly "level playing field" between private lenders and the government-run Direct Lending program.
- When Democrats regained control of Congress in 2006, FFELP was overwhelmingly popular with schools and students. Department of Education data demonstrate that during the 2006-07 school year, more than four times as many schools participated in FFELP than the government-run program, and private lenders originated more than 80 percent of all student loan volume.
- However, Democrats such as Ted Kennedy complained that private lenders were paid overly generous subsidies such that the government-run Direct Loan program was not "free to compete on a level playing field." As a result, Democrats in Congress passed legislation creating new benefits for borrowers in the Direct Loan program-in order to tilt the playing field in favor of the government-run program.
- Having taken tens of billions from private student lending to tilt the "level playing field" in favor of the government-run program, Democrats began to turn their attention towards abolishing FFELP outright. In October 2007, then-Sen. Hillary Rodham Clinton said in an interview that "I want the FFELP programs to compete with the Direct Loan program on a level playing field." Within weeks, she reversed her position, joining her fellow Democrat presidential candidates to convert the student loan program into an entirely government-run system.
- Likewise, Sen. Kennedy also flip-flopped, no longer calling for the "level playing field" between private lenders and the government-run program he wrote about in early 2007, but the total eradication of the private market for student lending and a monopoly for the government-run plan.
- Even as he continues to advocate for a government-run health plan to compete on a purportedly "level playing field" with private insurance, President Obama has included as a major agenda item the abolition of the FFELP program, and conversion of all federal student loans into a government-run system-abandoning the supposedly "level playing field" created over a decade ago.
"We are not taking a free enterprise system and federalizing it. We are in fact improving the entrepreneurial and competitive possibilities...because people are going to have to compete for the business...They are going to have to compete on the basis of price and the basis of quality."
-Deputy Education Secretary Madeleine Kunin, discussing creation of government-run Direct Loan program, House Education and Labor Committee hearing, June 10, 1993
Many Members may therefore question the authenticity of statements that a so-called "public option" in health care would not result in later actions to abolish private health insurance altogether. Members may also question how the President can propose to establish a government-run health plan on a "level playing field" with private coverage-while simultaneously moving to abolish private student lending together, shifting that "level playing field" entirely in favor of the government. Particularly given the public comments by one leading Democrat that a government-run health plan "will put the private insurance industry out of business," some Members may question when-and under what pretext-Democrats that successfully enact a "public option" will move to abolish private health coverage altogether.
For additional information, contact:
The House Republican Conference Policy Office