Here's how it can all be fixed.

Here's our plan to fix the student loan fiasco. We'll assume that the audience understands FFELP, FASFA, Stafford/PLUS/Perkins, where we are, and how we got here.

Our plan is quite simple. The Department of Education will be given the authority to issue a guarantee of 98% of defaulted loan dollars (or some industry-government mutually agreed upon target) for FFELP loan products. The guarantee can come with stipulations. These stipulations can encompass the loan attributes (term, payment options, and minimum collections efforts), and to ensure that the FASFA award translates into the appropriate loan amount. The stipulations cannot encompass marketing, financing, or loan processing. The Department of Education will then review defaulted loan claims to ensure that the stipulations are met, and if met, the Department of Education will pay out the claim. That's it. The Department of Education's role is to provide the default guarantee. Nothing more...nothing less.

So how will the consumer be protected? We'll turn to the FTC/FDIC/FRB/OTS for consumer protection and oversight of the intermediation process. These agencies already to a really good job at making sure that money is intermediated if a fair and balanced manner. From marketing, disclosures, and disputes to processing, funding, and accounting....you can bet that our current financial oversight agencies will straighten up a lot of the shenanigans that previously existed.

We've heard plenty of belly aching that many FFELP firms were sleazy marketers. Could have very well been the case. It's because the Department of Education does not have the personnel, resources, or experience in dealing with "sleazy marketers". Turn the FDIC or FRB loose on those "sleazy marketers" and any questionable behavior will stop in about 2 seconds. You get the idea: let's use the existing agencies for what they already do very well.

Also, the interest rate subsidies would go away under our plan. The marketplace would determine the rate of interest on a loan that is virtually 100% guaranteed will priced. Competition will indeed do a better job of determining the rate than the government could ever do. Our plan will also allow the lenders to implement their own collections strategies. Right now FFELP has pre-1970's collections strategies mandated (The Department of Education is woefully ignorant of how to structure a collections effort). If the Department of Ed is impressed with the loss rates today, wait until they see what an institution, under a highly competitive environment would do with the loss rates. In this scenario, every dollar collected contributes to the profit of the lent principal.

Of course, our idea would never fly. It's because someone at the Department of Education would loose precious budget dollars and people. Once the money and people are present, a bureaucracy perpetuates itself. Also, it would require our Congressmen to admit they initiated a foolish law before they suggested a radically different solution.

So, our students will continue suffer. Taxpayers will suffer. And the world goes on.