I tried to explain how this reform is not going to help students and is actually going to hurt them and the entire economy, but I was unsuccessful because the ‘good news’ media propaganda had already done its job.
This article is my formal explanation of why Obama’s student loan reform is nothing but a pure Marxist idea to replace the private market with a larger government program that is guaranteed by the government so that the losses will be socialized by the tax payers, while the higher education jobs are protected.
Contrary to what you read, this reform is not going to help students or parents – it does the exact opposite.
This reform guarantees that the higher educational system can continue to raise prices and the government can continue to make sure that more money is available to loan to students to pay for the increasing tuition rates.
This reform guarantees that students and parents will have to pay for the increasing cost of higher education, through higher taxes and inflation that will result from a government takeover of the student loan program.
On top of that, this program eliminates private sector jobs from the economy by removing the private bank lenders from gaining profits from student loans. That means that this bill guarantees fewer jobs for students when they graduate from college.
Sure, there may be more government jobs initially but as the government begins to topple from the weakening economy, government job are already being cut at the state level and will eventually need to be cut at the Federal level.
Less Jobs, Higher Costs
Those job cuts are because the private economy is not large enough to suppose the size of the government and this bill helps destory more private sector jobs - which also eliminate government jobs.
Obama is taking this idea directly from Marxism. This student loan reform idea is based on the government being capable of doing something cheaper than the private sector. That is never the case because government does not have competition or capital demands that force it to be efficient.
Moving student lending from the private sector to the government is guaranteed to increase the cost of higher education. The only difference is that it shifts some of the cost onto the entire society – through higher taxes and inflation.
The parents of students may think this is a good idea because the reform sounds like they will get a better deal and not have to pay as much for student loans. But the economy is not better off just because one group of people didn’t have to pay for the service they used, while the costs plus the additional costs of the burden of the government are paid for by the rest of the people.
Government economic central planning is a pure Marxist’s idea, but it has never worked as well as it sounds because no government has ever been as efficient as the free market. Obama has more faith in Marxist than he does in you and me.
Media Spin
President Obama and the brain dead economists at the Fed and in the media are spinning an old Marxist idea into something that sounds good and people believe them because of the tremendous influence they have.
If this idea was so good, then why didn’t the government do it years ago? And why are the socialist nations that love government economic planning like Cuba among the poorest in the world?
I’ll tell you why, because it's not a good idea.
Middle-Man Economics
President Obama and most of the financial media say that this idea to reform student loans will eliminate the middle-man from student loans. Currently the government subsidizes the interest rates that the banks charge for student loans, by reimbursing the banks when collecting interest on student loans.
The Obama plan removes private banks from the equation and has the students borrow directly from the government – and therefore eliminating $68 billion in interest that the private banks are currently collecting.
The problem with this explanation is the definition of the banks. Obama is telling us that the banks are the middle-man that needs to be eliminated, but the real middle-man is the government. The real exchange of goods is between the students that need to borrow money and the people behind the bank that borrow money to the students.
The government is the middle-man that drives up the cost and Obama’s plan does not eliminate the middle-man, it grows the middle-man. The banks or the people that have the money behind the banks cannot be removed from the exchange because the exchange is not with the government who does not have any money on its own.
The exchange of goods is still between the people that have money and the students, accept now the people that have the money are no longer free to negotiate the terms.
Under the Obama plan, the government gets to decide on the terms of the exchange of goods by taking the money from the people and lending it to students. All the money that the government has comes from the people through taxes and inflation.
This plan removes the free market from the exchange of goods and replaces it with a all powerful middle-man that dictates the terms of the exchange of goods – which in this case is the interest rate of borrowed money.
I leave you with this great video from Peter Schiff to further explain how college tuitions are so expensive specifically because the government has guaranteed student loans. The middle-man is the primary cause of high tuitions and this bill increases the middle-man and guarantees to continue this trend.