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Conservatives Should Be Happy About Student-Loan Reform

[Guest post by Barron Youngsmith.]

There's a certain pathos to Stephen Spruiell's predicament. If you haven't been following, the National Review writer has been in agony over having to defend the Republican side of the student-loan debate against Jonathan Chait. He's repeatedly insisted that he wishes he was defending his own philosophically pure position, which is that the government shouldn't be involved in student lending at all, but instead admits that nobody has put his preferred policy option on the table, so he's stuck arguing for a GOP-backed program, originally created by 1960s Democrats, that he half-jestingly calls "corporate socialism," and even "liberal fascism," against Obama's plan to make the system cheaper and more efficient. In order to explain why he'd doing this, Spriuell performs a couple different types of mental gymnastics. Since Jon Chait is currently pinned down writing TRB and picking apart the seemingly meaner Kevin D. Williamson right now, and I've covered student loans for us, I'll pinch-hit a response.

First off, in his recent post on the subject, Spruiell complains that Chait has mischaracterized his position. If he has, that's because the position is terribly convoluted. On the philosophical level, Spruiell justifies supporting this policy he doesn't support by posing as a tragic ambiguist: "When it comes to student loans, liberals may ask why conservatives would support subsidies and guarantees for banks. The answer is: We don’t. … [T]he Democrats’ education bill would massively increase the subsidies while hiding their true cost. If that is the alternative, we prefer the status quo."* In a fallen world, where government has already extended its tentacles into the realm of providing financial support for kids who want a higher education, the least-bad option is to simply defend the existing arrangement. Ok, that's certainly one way to think about it, although it makes Spruiell not so much truly conservative as merely reactionary. But then, in the course of defending this status quo, he has to justify the old program on its objective merits. Since there basically aren't any, he proceeds to slice the salami very thin indeed.

Here's how. On the policy level, Spriuell writes as if he objects to Chait's perspective on student loans, but when you look more closely, he out-and-out admits that they're on the same page about the uselessness of the bank subsidies, saying, "I never defended the status quo on its own terms." In fact, the only substantive complaint that Spriuell decides to hang is hat on is cost: Obama's student-loan plan expanded Pell grants at the same time that it cut bank subsidies, and Spruiell argued that the savings wouldn't be big enough to cover the new spending. "My reason for preferring the status quo had mostly to do with phony accounting," he writes. The problem is that (a) His complaints about phony accounting don't make sense even on his own terms, since according to his own preferred estimates, rather than the 'tainted' original CBO score, he found that student-loan reform would STILL save $28 billion dollars more than the status quo; and (b) If he's sincerely representing his position, then this isn't a clash of philosophies—it's simply an argument about budget numbers. Presumably, if this is Spruiell's only complaint, he'd support a student-loan bill that promised to boost Pell grants only in proportion to whatever savings come from the bill, or didn't boost them at all. Since Chait's something of a deficit hawk, and his main complaint about the old student-loan system revolved around the stupidity of government waste, he would back such a bill as well (I just asked him). So what's the big disagreement about?

Additionally, Spruiell takes Chait to task on two other wonky points which have little bearing on the fundamental soundness of student-loan reform, and gets his interpretation of them wrong. First, he complains about the way Chait used an example that came from Senator Lamar Alexander, who opposed student-loan reform: "[T]he government is charging 2.8 percent to borrow the money and 6.8 percent to lend it to the students, and spending the difference on the new health-care bill and other programs." Chait wrote that, as long as we're making loans, the difference between these rates is going to be spent one way or another, and this way it is funding the government, while under the old program it was pocketed by banks. "Not true," Spruiell writes, and then explains that neither the government nor the banks are able to pocket that entire amount. Instead, under the old program, the banks are guaranteed a fixed percentage at all times on any student loans that they sell, but they have to remit money to the government when credit conditions cause their take to go beyond that percentage. Ok. But the point here is that banks are guaranteed a fixed percentage on any student loans that they make. That's free money at near-zero risk. Spruiell makes it sound like this somehow disproves Chait's point, but the two margins being described are the exact same thing: Additional money that the government gives to banks for their own uses, which would not be wasted after a switch to direct-lending.

Second, Spruiell plays up the fact that Jason Delisle, the budget expert at the New America Foundation, thinks the student-loan bill was originally scored in a way which hides hidden costs to the taxpayer. But when I contacted Delisle, he said this was a misinterpretation. Both programs contained the same 'hidden costs,' yet direct-lending was still vastly cheaper than the old program. "As far as hidden costs go, both programs have hidden costs. When Senator Gregg, supported by National Review, asked for a private market estimate of the costs of the two programs, and said that rules for estimating don't take into account market's value of risk, the score came back and it said, yeah, both programs cost a lot more than we thought, but there's still a gigantic difference." So student-loan reform is cheaper than the status quo was. Period.

Ultimately, though, I'm not sure why we're still having this debate. Obama's success in passing student-loan reform has put both TNR and National Review exactly where we'd each like to be: Spruiell no longer has to defend a messy public-private boondoggle, and his magazine is free to enjoy the philosophical purity of railing against a student-loan program that is purely government run. And us? Well, we're happy because we won.

*[Here, Spriuell quotes from an NR editorial which I assume he wrote.]