Does a conservative approach to government encourage corruption? TNR’s Jonathan Chait makes the case today that it does, and his argument is quite persuasive.
To make his argument, Chait points to one of the many Bush administration scandals that’s been hovering just below the surface: the student-loan scandal, which Chait insists is “a direct result of anti-government mania.”
If you haven’t been following the controversy, it’s pretty straightforward. When Clinton was elected in ’92, the student-loan system was burdened by a layer of unnecessary bureaucracy. Higher-ed students would get a loan from a private lender, but the federal government would set the interest rate and guarantee the loan in the event of default. Clinton wanted to streamline the process and make it cost less — the government would make the loan, cut out the middleman, and save billions.
The right and loan industry went nuts, forcing Clinton to backtrack. The eventual compromise led to two types of student loans — direct loans and guaranteed loans. Colleges were allowed to choose the system they preferred.
They went with direct loans to save money, right? Initially, yes, but after a few years, colleges started going back to guaranteed loans, even though it included more bureaucracy and seemed to cost more. Conservative activists, lawmakers, and think tanks were thrilled. Competition led people away from government and towards private entities! Hooray!
Or not. Lenders were bribing college-loan administrators.
[I]t now turns out that the private lenders’ success came not through superior efficiency but through superior graft. The emerging college-loan kickback scandal is a vast scheme by private lenders to bribe colleges into foisting their services onto students. Lenders plied college-loan officers with meals, cruises, and other gifts. Some loan officers were given lucrative stock offers. Columbia’s director of undergraduate financial aid purchased stock in Student Loan Xpress — which became one of that school’s preferred lenders — for $1 per share and sold it two years later for $10 per share. Some lenders offered millions to the universities themselves to drop out of the direct-lending program.
So this whole scandal could have been avoided if Bill Clinton had just gotten his way…. Indeed, the very thing that drove conservatives to oppose Clinton’s reform — the vast private profits made available by guaranteed loans — is what enabled the scandal.
It’s surprisingly common.
The conservative approach to health care runs along the same lines. Most conservatives opposed the prescription-drug bill, but they approved of the provisions funneling recipients to private insurers, even though such plans cost around 20 percent more than traditional Medicare. During the Social Security fight last year, the right’s main goal was not to cut benefits but to funnel as much of the money as possible into private accounts, where Wall Street could take a healthy piece. Government can easily mail out checks to old people without corruption. Apportioning a $100 billion investment market without corruption would not be nearly so easy.
The latest development in the college-loan scandal is that the U.S. Department of Education didn’t notice the massive scandal unfolding under its nose. In fact, one of the key Department officials charged with overseeing student loans, Matteo Fontana, turns out to have owned more than $100,000 in stock in one of the private companies that benefited from his lax oversight. (It’s the ownership society in action!)
To appreciate just how amusing the right’s approach really is, Rep. Ric Keller (R-Fla.), during a hearing on this scandal, said the fact that Bush’s Department of Education was so lax in recognizing what was going on proved — you guessed it — that the scandal-plagued guaranteed-loan program was still superior. As Keller told his colleagues, “Why should we put the federal Department of Education in charge of all student loans?”
He was unaware of the irony.