The New York Times and Washington Post are reporting that an agreement has been reached to include a federal takeover of student loans as part of the forthcoming reconciliation package. The New York Times reports:
Democratic Congressional leaders struck a tentative agreement on Thursday that breathes new life into President Obama’s proposed overhaul of federal student loan programs. The deal would bundle the bill into an expedited budget package along with the Democratic health care legislation, which would allow for both measures to be passed by the Senate on a simple majority vote.The bill would end government payments to private, commercial student lenders, leaving the government to lend directly to students. It would also redirect billions of dollars to expand the Pell grant program for low-income students, and to pay for other education initiatives.
The Washington Post notes:
Both proposals, stuck in Congress for nearly a year, are gaining new momentum as Democrats contemplate facing voters in November without having delivered on any of Obama’s major policy objectives.
Key Senate Democrats initially balked at combining the health-reform bill with a measure that overhauls the nation’s student-loan program, but on Thursday they had warmed to the idea.
But, as Heritage wrote last year, this federal takeover, originating with the House SAFRA bill, would be a bad deal for students and taxpayers:
[The proposal] would end the FFEL program in 2010, shifting all student aid lending into the federal government’s Direct Loan program and the Federal Direct Perkins Loan program. This proposed change is premised on the belief that ending subsidies to private-sector lenders will reduce government costs and that the federal government will administer student loans more efficiently than private lenders do.
In July, CBO Director Douglas W. Elmendorf acknowledged that the original CBO projection did not adjust for the cost of market risk of increasing defaults that the federal government will assume with the shift to direct lending. In addition, there is a danger that taxpayers’ costs could balloon if the federal government proves less efficient in administering and collecting loans than current private-sector lenders, which have an incentive to administer and collect loans efficiently in order to maximize profits.
There are also concerns that the elimination of FFEL and shift toward direct loans would lead to worse service for borrowers. Right now, college students have the opportunity to originate loans with the federal government through the Direct Loan program; however, most borrowers choose to take loans from the private-sector providers. If the federal government is given responsibility for making and administering all loans, there the quality of service in loan administration could be poor, presenting challenges for borrowers and colleges.
The economic losses from carbon emissions cap-and-trade policies are often compared with “the cost of doing nothing.” CBO director Doug Elmendorf in his testimony to the Senate Energy and Natural Resources Committee labels these costs as nonmarket impacts. These include effects of human health, loss of species’ habitats, and other destruction to wildlife and ecosystems. He points to a study by William Nordhaus and Joseph Boyer that found an 11 degree Fahrenheit increase by 2100 translates to an almost 5 percent drop in output.
This is a common argument made by proponents of the legislation. However, those who make this argument do not carry the analysis through in a rigorous way, which renders the argument simply a strawman.
This “opportunity cost” of doing nothing must be discounted by the actual effect the “doing something” will have. Doing something like cap-and-trade, does not mitigate climate change entirely and therefore the (negative) opportunity foregone (i.e., the expected climate change) is not the full benefit.
We have to look at how much climate change Waxman-Markey is expected to mitigate. As Heritage analyst David Kreutzer says, “We need to look at the cost of these proposals in light of what difference these proposals make. None of the proposals will entirely eliminate predicted climate change regardless of the assumptions, models, computers or theories used.”
Climatologists estimate that Waxman-Markey’s impact on world temperature will be too small to even measure in the first several decades. The projected reduction of world temperature would be 0.05 degree Celsius by 2050. If CO2-emission levels meet the Waxman-Markey target of 17 percent of 2005 emissions by the year 2050, and if they are frozen at that level for the rest of the century, Waxman-Markey would still reduce the world temperature by only .2 degrees Celsius (0.36 degrees F) by 2100. Therefore the increase from the “do nothing” baseline in GDP assuming a rough linear relationship of 11 degrees to 5% GDP is 0.36*(11/5) = 0.79% (a generous estimate). The cost of 3% of GDP must be compared against a benefit of (at most) 0.79% GDP.
Being good stewards of the environment and not wasting our resources are compatible goals. That is why using a cap and trade policy that hinders the second goal by forcing us to use our resources less efficiently is very likely to end up hurting the environment as well. The recent Nobel Prize in economics highlights the work of economists that show that individuals are very ingenious at finding ways to work cooperatively towards a common goal. Americans by and large are concerned about the environment and, given the chance and resources will develop environmentally sound and economically efficient energy sources. Maybe the 3% potential income Waxman-Markey is willing to give up each year could be used to find lower cost solutions to mitigating climate change. Why cut that income off?
Karen Campbell co-authored this post.