US Rep.
Scott Garrett On January 6, 2009, Congressman Scott
Garrett (R) was sworn in to his fourth term in the United States
House of Representatives, representing New Jersey's Fifth
Congressional District. He was first elected to Congress in
2002. Scott is a leading advocate of tax relief and pro-growth
economic policies that return the focus to the family budget,
authoring and supporting initiatives that keep more of your
money in your pocket. He has been working to improve
accountability and transparency in budget procedures and other
government practices to ensure that government is responsive to
your needs. Congressman Garrett maintains a
website here.
US Rep. Scott Garrett
The Other Public Option
September 26, 2009
In 1993,
Congressional Democrats worked with newly sworn-in
President Bill Clinton to create the William D. Ford
Federal Direct Loan Program, a student loan public
option meant to compete with private student loan
issuers. “We are not taking a free enterprise system
and federalizing it,” then-Deputy Education
Secretary Madeleine Kunin said. “We are...improving
the entrepreneurial and competitive possibilities.”
Sound familiar?
Fast forward sixteen years and the new Congressional
majority is again working with a newly installed
President on a public option, this time a public
option for health care insurance. President Obama’s
chief ally in the Senate, Dick Durbin, said on Meet
The Press last Sunday that this public option is a
way to make sure there's competition for these
private health insurance companies. The President
himself has said that the public option will force
the insurance companies to compete and keep them
honest.
The student loan public option should serve as a
cautionary and instructional tale for Congress and
the American people as we continue to discuss ways
to reform the health care system. Right now, over
80% of student loans issues are federally guaranteed
– about two-thirds of those are issued through
private lenders, while the remaining third are
secured directly through the public option. Though
both public lenders and federally guaranteed private
lenders offer relatively similar interest rates and
payment plans, more than twice as many students and
parents choose private options because of
universities’ preference and superior customer
service.
On Thursday, the House passed a bill (H.R. 3221)
that will, if signed into law, eliminate private
loans with federal guarantees, replacing such loans
entirely with the government’s Direct Loan program –
in other words, removing the optionality of the
public option – at a cost of $1 trillion over the
next ten years. In addition to crowding private
capital out of the industry, this bill gives the
public student loan programs advantages the private
sector will be unable to match. For example, the
bill gives federal loans a variable interest rate
when rates are on the decline and a cap when rates
go back up. The plan also locks in low
fixed-interest rates on certain loans. Once the
Federal Reserve’s spending spree results in
unavoidable inflation, the Treasury will likely be
paying to lend this money. All of these provisions
lead to an unsustainable plan described by the Wall
Street Journal as a kind of heads-borrowers-win,
tails-taxpayers-lose offer [that] will be difficult
for a private company to match.
Since 1965, private loans carrying a federal
guarantee have been the most common means of
borrowing to finance a college education. It took
less than two decades for the public option to crowd
out private student loan providers, leaving
students, parents, and universities with an “option”
that they have rejected by a two-to-one margin.
The idea that government can compete with private
health insurance – while setting its own rules for
competition – and remain optional defies both
history and basic economic principles. I support
real health care reform that is portable,
affordable, sustainable, effective, and innovative.
