Kevin provides a 3 point argument for maintaining the status quo on FFEL.
In order from most valid to least:
1) "The private sector has been responsible for major technological and service innovations in the federal student loan program. "
This is true. It's hard to get federal bureaucracies to invest in the latest technology. However, this is exactly where competitively bid servicing contracts come in.
2) "Since 1965 Congress has understood that it's unreasonable to expect well-run financial institutions to lend at below-market interest rates to individuals with no credit histories, income, collateral or cosigners...Without the subsidies, we would not have a low-cost, private-sector-based program. "
That was true in 1965. But now major financial institutions will lend money to your dog at a zero percent introductory rate, and private student loans, which require none of the above and have no federal subsidies, are the fastest-growing sector of the student loan business. Clearly, they can and they will.
Also, this whole "involving the private sector is always better regardless of bloat, cronyism, or just plain incompetence" line smacks of W's first term. I thought we were all disgusted with that by now. Remember what a fine job Halliburton did rebuilding Iraq?
Which leads us directly to the worst point,
3) "because loan providers compete with one another, borrowers typically save thousands of dollars. In fact, federally guaranteed loans are the lowest-cost student loans available."
In fact, the vast majority of loan providers do NOT compete on price. (MyRichUncle is a notable exception.) They charge the federal maximum. That's because they didn't have to discount--they just "induced" schools to put them on the preferred lender list, and business followed. Now that there's more noise about the fact that you do have the right to shop around, all of a sudden there are some discounts on offer, as the Austin American-Statesman reports:
"Student lender Nelnet Inc. said borrowers who take out new Stafford loans after July 1 will be able to get a rate cut of 1 percentage point if they sign up to have their payments automatically debited from their bank accounts, up from the current 0.25 percent discount.
Citigroup Inc.'s student lending unit said it will automatically drop its rate 1 percentage point once students start repaying their loans, typically after graduation."