The proposal by the administration to have the government take over the ENTIRE student loan enterprise is worrisome on a lot of different levels. But the greatest concern should be the loss of freedom of the recipients.
Student loans burden graduates with huge amounts of debt that must be repaid when they can least afford it -- in the first ten years after graduation. Instead of using the money to start businesses, buy houses, or start families, it is increasingly typical for young graduates to delay 'growing up' in order to pay for their loans.
Owing a bank can be a pain in the butt, and the rules for handling student loans are onerous and invasive as it is-- but they can be deferred for hardships, so they are not completely unreasonable.
Owing the government, on the other hand, is a real problem. Government can reach in and take the money in ways that it sees fit: garnishment, income tax refunds, etc are within its reach. Government can also 'incentivize' repayment through programs that provide services to 'underserved areas.' You can get student loans forgiven by teaching in the inner city, serving as a medical doctor in a clinic, etc.
In the hands of a government run by a 'community activist,' it's easy to see where else this could head: incentives for buying 'green products' that the market can't sustain; incentives for using public transportation vs having a car; incentives for lifestyle choices that the government deems more useful -- the list is practically endless.
Because education continues to be more and more expensive, having the government control the flow of funds to students and then 'forgiving' portions of the debt based on these incentives will become yet another massive transfer of wealth from those paying taxes to those who don't.
It will also control the behavior of the recipients in ways they do not realize (see incentives above), making it more likely that they will choose options that benefit the government rather than pursuing their own path. If the government is responsible for your educational level, what is the likelihood that you will be critical of its policies in the future? One only has to look at the fierce loyalty of Depression Era working folks to FDR and the Democrats to see what lies ahead with the coming cadre of college graduates.
If we are serious about liberty and freedom, we Conservatives need to figure out a better way, and do so quickly! We need to figure out ways to deliver quality education through new channels (iTunes U anyone?) and reduce the cost.
As Dave Ramsey is famous for quoting the Scripture, "the borrower is slave to the lender."
This is not the relationship between citizen and government envisioned by the Constitution -- we need to give this a really hard press NOW!