Student-Loan Shenanigans

President Obama and Congressional Democrats have been criticized for being antibusiness. But Washington is about to bestow a huge gift upon one particular type of business—the type that doesn’t pay taxes.

Despite bipartisan opposition, this week the Democrats hope to use budget reconciliation in the Senate to ram through changes to the health-care bill the House passed on Sunday. Coming along for the legislative ride is a federal takeover of the student-loan market.

On the heels of recent changes in the law that discourage private loans to students, the new reconciliation bill includes a ban on private companies originating federally guaranteed loans. All such loans will now come directly from the U.S. Department of Education.

This plan is hitched to ObamaCare for several reasons. For one, the student-loan takeover could never attract a filibuster-proof 60 votes if it had to pass as a stand-alone measure, and it might not even get 51. The government’s bogus accounting for student loans also creates the illusion that this bill will help save enough money in the first five years to protect the ObamaCare provisions from Republican challenges under budget rules. Remember, budget reconciliation is supposed to be about preventing deficits, so it takes a mother lode of accounting gimmicks to claim that the bill’s spending binge is a cost-saver.

Part of this reconciliation fairy tale is that cutting out the private-lender middlemen will save billions every year as students borrow directly from the feds. But while Democrats are eliminating a revenue stream at for-profit companies, they are simultaneously creating another one for a handful of favored nonprofit companies.

Currently, for loans that the government makes directly to students, the Department of Education conducts competitive bidding and hires private companies to service the loans. But in the pending bill, several dozen nonprofit firms will be eligible to receive no-bid servicing contracts on up to 100,000 student accounts for each firm.

Which nonprofit organizations will qualify? California’s ALL Student Loan looks to be a big winner, thanks to language written by Representative George Miller of California. ALL Student Loan may have helped its cause by retaining the services of Vincent Reusing, a lobbyist whom the Chronicle of Higher Education has described as a “personal friend” of Mr. Miller.

“The person that any lender chooses to be their lobbyist is irrelevant to Chairman Miller,” says Rachel Racusen, a spokesman for Mr. Miller. She adds, “Under this legislation, nonprofit lenders will be required to meet the same high-quality servicing standards as for-profit lenders, including measures of borrower satisfaction.”

To be fair to Mr. Miller, his track record suggests that he favors assaults on profit-making businesses whether or not his friends are lobbying him. It’s also true that Mr. Reusing has been very friendly to more than one left-leaning politician over the years. According to OpenSecrets.org, Mr. Reusing has contributed more than $80,000 to various Democratic campaigns, including Mr. Miller’s.

The nonprofit companies set to benefit from this reconciliation earmark clearly enjoy broad support in the Democratic caucus. And you thought Democrats didn’t like business.