Student Loans: Government to Originate?
May 23, 2009 by Miranda Marquit
Filed under Finance
One of the issues facing higher education in this country is that of the student loan industry. Private lenders are subsidized in their attempts to offer low-cost student 
loans to desperate college attendees. However, the system is becoming unwieldy and costly (as subsidy programs to already-profitable industries often become). The government, therefore, is considering originating all the loans itself, reports MarketWatch:
“Instead of maintaining this elaborate web of programs designed to prop up the [Federal Family Education Loan] Program, we should originate 100% of new loans through the less costly Direct Loan program,” said Robert Shireman, deputy undersecretary of the Department of Education, at the hearing of the House Education and Labor Committee.
This would probably be a good thing. Right now, the student loan industry is enjoying large profits on top of subsidies. And there is little risk to these lenders. If the government took over, though, it would mean money saved for taxpayers. Instead of private lenders getting the loan payments, the government would. This actually has the potential to be a government program that pays for itself. Plus, the government could hire those loan officers and support staff in the student loan industry, so that job loss isn’t an issue.
Do you think it’s a good idea for the government to originate student loans?
image source: Clawed via Wikimedia Commons
Love your content! And I think it’s a good idea for the government to originate student loans.
Another terrible idea from the geniuses on Capital Hill, guaranteed to lose money, and a further politicization and socialization of the economy.
Let the free market work, and private enterprise access risk and price accordingly. Have we already forgotten the raging “successes” of Fannie Mae and Freddie Mac? Not to mention Medicare and Social Security….. we are bankrupting the nation with all of the giveaways and good intentions, and stupidities like this proposal.
Right now the government is losing a ton by subsidizing student loans given out by others. This would actually be a step up, since at least some money would be coming back. One of the problems with Fannie and Freddie is that at the time they had their serious issues, they were no longer government run. They were private and for-profit. However, the government sponsored them. It is a completely different situation…
Fannie and Freddie, both government-sponsored enterprises (GSEs) (now government-owned enterprises), are regulated differently than banks through the Office of Federal Housing Enterprise Oversight within HUD with lots of meddling and intimidation from Congress. They’ve also suffered through a host of greedy execs who were basically political appointees. In a perverse way, they achieved their mission of creating affordable housing by helping foster the environment for the current financial crisis.
I was never in favor of the TARP, and think it was mistake. The bad banks like Citi, Wamu and Wachovia should have been allowed to fail and get worked out through some RTC-like entity, while good banks like JP Morgan and Wells Fargo should not have been forced to take money they didn’t need. There’s nothing like the failure of one, to give the survivors religion in a hurry. That’s the big difference; private enterprise always operates with the self-regulating threat of failure, except when government perverts the free market. In government, there’s no such thing as a failed program, only underfunded programs.
But we are getting off topic…….
Sorry, Miranda, but while Fannie and Freddie do have private shareholders they were always quasi government companies controlled and regulated by Congress, and implicitly guaranteed by the US taxpayer. One of the big problems with Fannie and Freddie has been all the government meddling and politicization of the lending process that finally resulted in the inevitable meltdown of these companies in 2008. The government has consistently proven it can’t regulate or constrain itself, always underestimates costs and overestimates revenues, and runs practically nothing at a profit. This will be no exception. I bet you a virtual beer on that point, so get ready to buy my favorite brand.
Regulated — much the same as other companies. I do know that part of the problem is that the assumption was always that the taxpayers would bail out their decisions. However, Fannie and Freddie didn’t start making the same kinds of decisions that other big banks were making until they were allowed to. They’re getting the same bailout treatment that private banks have been getting. It’s all about finding balance and prudent regulation. Because private businesses aren’t any better at regulating themselves. We’ve seen how well private business takes care of its affairs. And then it expects government handouts, too!