"The Plan" is doomed

We're so relieved that the ridiculousness continues, because now it reaches a level of pure entertainment. We were getting bored with "American Idol", so we're happy we have the "The Student Loan Show".

The Department of Education is drafting their "Plan" to save the federally guaranteed loans. "The Plan" is wonderfully summarized in today's WSJ:

"In a conference call Wednesday, Lawrence Warder, the Education Department's
acting chief operating officer for federal student aid, said his agency expected
to buy student loans from lenders at "no cost" to taxpayers, meaning lenders
would receive no premium for selling the loans."

We fell off our chairs when we read this. Why on earth would anyone make a loan to be sold at par value with no prospect for any associated revenue of any sort? A lender entering into such an arrangement would provide free marketing expense, processing expense, and financing services expenses to fund a loan that they make $0.00. We're by no means finance experts, but when expenses are greater than revenue, that amounts to a loss. And that's not good business for a business who exists to create a profit.

Sure, "The Plan" makes sense to Larry Warder: he works for the government. He has no profit incentive in his current role. He's a career accountant spending the bulk of his career with Deloitte & Touche, so we're thinking he understands expenses, profits, you know, all that high level finance stuff. Ultimately, we're perplexed at this proposed "Plan" coming from him.

It's just quite obvious that the policy makers and law makers are absolutely ignorant to the possibility that the softness in student lending could be the result of the removed subsidy's and increased fees the lawmakers instituted in the Student Loan Sunshine Act. Like we've said before: provide all the liquidity you want, without a profit no one will participate.