Years ago some people in Congress came up with an reasonable-sounding idea to help more students attend college. Students would borrow the money from private banks and loan companies, which would be willing to advance the money because the federal government would protect the banks from losses.
Unfortunately, the federal guarantee meant that banks didn’t necessarily try very hard to collect, since the government was going to bail them out anyway, and the program ended up costing the taxpayers a lot of money.
So back in the 1990s the federal government tried an experiment: Besides the existing program underwriting private loans, it would also lend money directly to students, with collections handled by the friendly folks at the Internal Revenue Service. The experimental program proved to be pretty successful. Not only did it cost the taxpayers less for the number of loans, students ended up paying lower interest rates.
Eventually the Obama administration had the good sense to get rid of the older private loan guarantee program and expand the direct program, with the result that more students are able to get loans while at the same time costs are lower for taxpayers. A win-win, as they say.
The only people not happy about this are the loan companies and the banks. They can still make all the educational loans they want, but they’re no longer covered by a taxpayer guarantee. That is, no more risk-free profits at taxpayer expense.
So they’ve been pouring donations into the Romney campaign, and Romney has come out in favor of reversing Obama’s decision and restoring the old system of taxpayer guaranteed education loans.
Of course, Romney claims that this time the loan guarantees will actually save money, but as this Boston Globe article points out, people familiar with the program’s history think that’s pretty unlikely.