Amidst all of the furor over President Obama’s historic (though not necessarily desirable) achievements in the realm of health care reform, it is easy to ignore the finer points of the Democratic agenda which were pushed forward concurrently with the bill passed last Sunday night. Indeed, while members of this author’s party are entirely correct in pointing out the reform bill’s numerous flaws, economically destructive ideas, and perverse incentives that litter the bill, these are hardly the most alarming elements that, as Wesleyan students, should concern us. Much of the bill’s real economic malpractice will not take effect until 2014 (if at all), but one element of the bill’s attendant “sidecar” package bears a power grab which is truly alarming in scope, and which will take effect immediately. I refer to the nationalization of the student loan industry.

With rare exceptions, students—particularly Wesleyan students—have great reason to care about the future of the loan industry, given that they are its primary customers. Wesleyan students will begin their post-college careers with an average starting salary of $46,500, according to BusinessWeek, and so the interest on these loans is likely to take up a substantial amount of our income, at least initially, and it is dangerous in the extreme to pretend otherwise. Contrary to the suggestion by many conventionally liberal commentators, such as Valerie Strauss of the Washington Post, that the government has every right to nationalize this industry because “the government already pays for [student loans] so, by definition, it already is a government program” and that “it’s hard to logically argue against the reform,” the shoe is precisely on the other foot. It is harder, though by no means impossible, to logically argue for this policy.

David Dayen of the liberal blog Firedoglake sums up the case for the policy succinctly; he writes that student loans are “pretty well nationalized already. Most private loans have an explicit federal guarantee, meaning that they accept no risk for the loan and take in all of the profit. The House Education and Labor committee estimates that almost nine out of every ten dollars in the student loan market carries a federal guarantee. What’s more, the government subsidizes this industry in addition to backstopping it. So, add that up and you’re pretty much well on the way to nationalization. All student loan reform would do is implement a more efficient way to deliver loans to students, which is in the national interest. Specifically they would end the bank subsidies and use that money to help low-income kids go to college.”

The case is two-pronged, and both prongs need treatment. Dayen’s first claim is empirical—that the student loan industry was practically nationalized already, and so the obvious route to take would be to nationalize it altogether. What this means is deliberately left to the imagination, as “nationalization” really refers to a bundle of policy decisions, which run the gamut from complete government takeovers to bailouts that still leave the industries in question technically private, but leave them entirely dependent on the government as the largest stakeholder. The economist Donald Marron clarifies as to how far this “nationalization” had already gone:

“In a private lending market, you would expect lenders to make decisions about whom to lend to and what interest rates to charge,” writes Marron. “And in return, you would expect those lenders to bear the risks of borrowers defaulting. None of that happens in the market for guaranteed student loans. Instead, the federal government establishes who can qualify for these loans, what interest rates they will pay, and what interest rates the lenders will receive. And the government guarantees the lenders against almost all default risks.”

Judged against a policy like this, Dayen’s claim on behalf of full-scale nationalization (i.e., that removing the power of private lenders altogether is a practically meaningless move) sounds increasingly plausible. However, it is only one potential remedy, whereas the alternative, privatization, gets nearly no treatment. This is a mistaken omission, as privatization would arguably solve far more problems with the student loan industry than nationalization would. Education Policy expert Lindsey Burke, for instance, has written on the inflationary effects that federally-backed student loans have on college costs, given that colleges have no incentive not to charge the highest tuition possible, and banks have no incentive not to grant loans to the tune of those high costs, in the absence of risk. This nationalization element, which hands student loans entirely over to quite possibly the most risk-friendly entity in the United States (the federal government), can scarcely be expected to reduce such an effect. As such, Dayen’s claim that “it was nationalized anyway, so this just makes it official” is a classic fallacy in the sense that he is arguing, essentially, that “it was already bad, so why not go the distance and make it worse?”

This leads us neatly to Dayen’s second claim, which is normative in nature: that this policy frees up federal money to help “low-income kids go to college,” and that is a desirable aim for federal money. In the first place, I should note that if Burke’s observations on the inflation of costs are true, this does not follow at all. In the second place, however, I must express my alarm at the unjustified tacit egalitarianism of this claim. There is no guarantee that the returns on investment in such prospective low-income college students will, in the aggregate, outweigh the costs—in fact, I can find no evidence beyond raw moral intuition of this claim at all. One need not defend unnecessary subsidies to banks to object to unnecessary subsidies to individuals, especially at the point where they have the potential to drive up tuition for the rest of us. The health care bill is properly recognized as the first priority for conservative action in 2010, but this act, too, cannot stand.