The Student Loan saga continues…

Posted by admin on: 2009-03-06 10:41:19

The Student Loan saga continues

The Government claims it will reduce cost for it by providing direct loans.

The Government claims it will save about $4 billion a year.

But is that the real reason?

SLM has about 1/3 market share of the private operated student loans companies. In 2006 and 2007, SLM paid taxes of 837 million and 728 million. Since SLM has about a 1/3 market share, if you assume it pays about 1/3 in taxes for the Student Loan Industry then in year 2006 and 2007 the private industry paid about 2.5 billion in taxes each year.

SLM has about 8000 employees and again we estimate is about a third of Student Loan industry. We estimate SLM income tax from the employees to be about 1 billion, and that would make the industry income tax about 3 billion.

Now add the employees other taxes paid, like payroll taxes.

With just these two taxes the Government would, in totality, lose about a 1.5 billion more in taxable income from firing it's partners than saving in payments.

It eliminates jobs and the job losses using the same multipliers as what the current administration claims as stimulus. I wonder if the current administration has subtracted the job losses as a result of their actions in the Student Loan Industry against the other promised job gains by creating additional stimulus.

Some people claim that there is a multiplier effect: when you eliminate thousands of jobs then you hurt the local Gas Station, Restaurant, Food Store, etc. So not only is this possibly a negative cash flow for the Government, but it also creates a negative job multiplier. Thus creating even more negative effects on Government taxes.

Now calculate the additional balance sheet risk that the government is now tackling all alone being the sole lender. Keep in mind that most business books consider being a sole lender to be very poor business practice.

For the students, it reduces the options available. It reduces consulting, guidance and most importantly that one-on-one help many students need.

For the big picture, it reduces free market efficiency due to very limited competition. Thus this will in time become possibly another large inefficient government bureaucracy.

In my years as a businessman, I have never seen a project triple like direct loans while ever saving money. I believe that you can't triple business and save money.

I understand that the Obama administration wants to increase Government involvement and that is their objective. We just ask then, Why don't they just say it. But please don't sell the public a label like cost saving for the Government after reviewing all the facts it looks like a cost increase of 1.5 billion to us the tax payers.

Less services to the students.
More cost to Government.
Less competition.
More financial risk to the Government.
Less Jobs.
More Bureaucracy.

Is this a good plan.

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