The Strange Case of Yale and the "Federal Takeover" of Student Loans

Caesar Storlazzi has been the chief financial aid officer at Yale since 2005. Back in November, he made the decision to work with the government’s direct student lending program, in anticipation of the disembowelment of Sallie Mae and the other mega-lenders. And now, he tells the Times, he’s regretting it. “’It really felt like the administration was just shoving this down our throats,’ he said. ‘It feels a bit like a federal takeover.’ With competition among lenders, he said, ‘We get better prices and services.’” What a strange and amazing thing for a senior official at Yale to say!

For starters, maybe “we” get better prices and services. But students don’t.

Storlazzi grew up in New Haven, and attended Yale, and describes his family as working class (he has said that the cost of Yale was about equal to half his family’s income). He never left Yale, actually, having started working in the financial aid office as a work study job. Now, Storlazzi’s office-actually, the initiative of his predecessor-has been at the forefront of need-blind aid; students from families that make less than $60,000 a year pay zero dollars, and families that make more also saw payments reduced.

Even with Yale’s endowment in the toilet, with construction projects frozen, the number of doctoral students cut back, with Yale-owned New Haven commercial real estate unrentable, the financial aid office has made sure that they’ve kept student aid available.

Let’s look back to October, 2008:

As the credit market tightens, nearly 30 percent of colleges that use commercial government-backed student loans are considering switching to direct government loans in the next academic year, according to a survey of 416 financial aid administrators released Tuesday by Student Lending Analytics. An additional 6.3 percent of colleges have already switched this year, the survey found. But Yale has no immediate plans to join them, Director of Student Financial Services Caesar Storlazzi said. As it does every year, Yale is examining the possibility of offering direct loans, he said, but he does not expect the University to switch in the near future. Yale continues to use private lenders because they offer better customer service and a range of loan options, unlike the federal government, Storlazzi said.

Storlazzi has always been a cheerleader for the corporate lenders, and only long after other schools began shifting to direct government loans did Yale follow suit. That the “range of loan options” and the “better customer service” are his only two reasons-also, the exact reasons cited by lobbyists for loan companies like Sallie Mae for their existence!-is an incredibly weak argument, given the difference that these different kinds of loans make in students’ lives.

The most important thing about the already-passed House bill on loan reform is that it has the effect of keeping “interest rates low on need-based student loans.”

And here’s Gail Collins explaining the reform:

Let us stop here and recall how the current loan system works:

1) Federal government provides private banks with capital.

2) Federal government pays private banks a subsidy to lend that capital to students.

3) Federal government guarantees said loans so the banks don’t have any risk.

And now, the proposed reform:

1) The federal government makes the loans.

For a much deeper background, there is this to read. The government takeover that people are freaking out about? It’s actually calling for the end of government-backed corporate socialism.

What possibly makes people like Storlazzi, who clearly understands the urgent role of financial aid and needs-blind policies, take these lobbyist talking points and run with them? How can an expert, who clearly gets so much, totally not get how an entire swollen industry makes billions of dollars off servicing government loans, thereby taking money out of government coffers and out of student’s future earnings? Something here just doesn’t add up.