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Anytime the government seeks to take over a failing industry, there is always a probability that failures can ensue. After all, when has the federal government ever got anything right?

Now, the Obama Administration is moving to exclude all private lenders from making government guaranteed student loans. This job killing move will cost tens of thousands private sector jobs as the government earns a profit on charging students for higher education. Additionally, schools and families will lose the choice of how to borrow money to pay for college. Currently, legislation is being drafted in Congress to federalize student loans, and Senator Tom Harkin, who chairs the Senate HELP Committee has promised to schedule hearings as soon as this bill passes the House. (This eerily sounds like Obama’s health care reform…doesn’t it?)

Secretary of Education Arne Duncan sent around this letter to colleges and universities encouraging them to switch to government loans now (even though, the bill has not even been passed yet). Since when do departments institute laws before they are even passed?

From: Duncan, Arne [mailto:Arne.Duncan@ed.gov]

Sent: Monday, October 26, 2009 10:39 AM

Subject: Letter from the U.S. Department of Education regarding student loan programs

THE SECRETARY OF EDUCATION

WASHINGTON, DC 20202

October 26, 2009

As this academic year moves forward, it is hard to believe we already need to consider the 2010-2011 year to come. In doing so, I am writing to seek your assistance and offer mine in taking the necessary steps to ensure uninterrupted access to federal student loans by ensuring your institution is Direct Loan-ready for the 2010-2011 academic year.

Eighteen months ago, uncertainty in the financial markets seriously threatened the availability of Federal Family Education Loan (FFEL) Program loans for the upcoming 2008-09 academic year. Congress acted quickly to provide the Department of Education with unprecedented temporary authority to directly finance loans made through FFEL Program lenders. The goal was to ensure that every student or parent with a need for a federal loan would be able to get one, whether or not the student’s educational institution had taken the steps to provide loans through the Direct Loan Program (where loan access was not affected). This stopgap measure, the Ensuring Continued Access to Student Loans Act (ECASLA), was helpful in assisting FFEL Program lenders in making $61.3 billion in new loans to students and their parents this past year. And the bulk of those funds—some $46.3 billion—was provided by the Department of Education.

While many institutions like yours continued to use the FFEL Program loan delivery process last year, more than 500 others responded to the uncertainty by switching to the Direct Loan Program. These colleges’ move to direct lending happened in an efficient and effective manner, without any interruption of service to students, and the number of Direct Loans increased by nearly two-thirds compared to the previous year. As you know, the Direct Loan Program provides students with the same types of loans, with essentially the same terms, as those made in the FFEL Program.

I do not anticipate any major loan access problems during the remainder of this academic year because Congress’s temporary measure remains in effect. However, while there are encouraging signs that the financial markets are rebounding, the most prudent course of action is for you to ensure that your institution is Direct Loan-ready for the 2010-2011 academic year. That way, loan access for your students will be assured. As you may know, President Obama has proposed that Congress make the loan system more reliable by moving to a 100 percent Direct Loan delivery system. In any event, under current law, ECASLA will expire, and the continued participation of FFEL Program lenders will be in question.

The Department of Education stands ready to assist with any questions you and your staff may have about becoming Direct Loan-ready. Many institutions have already taken the initial step of contacting us to ensure the appropriate transition steps have been taken at Federal Student Aid to begin the process. If your school has not taken this initial step, we recommend that you do so. Please also reach out to your technology, financial aid, and business offices to make sure they are working together to ensure federal loan access for your students and their parents. If they are unsure of the steps to take, please have them contact our school relations center at 1-800-848-0978, or e-mail us at DLEnrollment_FSA@ed.gov with questions.

Thank you for your attention to this important matter.

Arne Duncan

This has caused quite a firestorm at colleges and universities throughout the country, even prompting them to send letters to legislators urging them not to support any legislation that would federalize the student loan industry. In fact, Sens. Mike Johanns (R-Neb.) and Lamar Alexander (R-Tenn.) sent letters to Secretary Arne Duncan in November warning of the ramifications of doing this to the student loan industry.

There is great anxiety by the states that could be impacted: Virginia, Indiana, Pennsylvania, Florida, Delaware, and New York will all lose jobs due to this legislation (if passed). With unemployment at an all-time high, wouldn’t you think that the Obama Administration would allow private businesses to flourish and create new opportunities? Instead, it appears they are planning to destroy them and continue adding to the unemployment numbers.

As I was entering college in 2000, I relied on student loans to pay the $30,000 a year tuition at the private college I attended. If I did not have the opportunity to borrow from a private lender, my dreams of being the first female and first person on both sides of my family to graduate with a degree would not have been reality. I received a fine liberal arts education and have received many opportunities that would not have been open to me otherwise. If the government takes over the student loan industry, this would be shutting the doors of opportunity on others, whose stories might be similar to mine.

Note: Erick over at RedState has more on this, as the New York Times came out in defense of this proposed legislation.