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News & ArtsTuesday, March 30, 2010
Politics / Money Along with the Health Care Bill Provisions and Changes: Student Loan Overhaul
Posted by Grant Brissey on Tue, Mar 30, 2010 at 6:04 PM
From the Los Angeles Times:
The healthcare provisions and changes to the loan program for college students were sandwiched into a single piece of legislation — the budget reconciliation bill approved last week by the House and Senate.And while the overhaul to the healthcare system is historic, the changes in the student loan program — though smaller — are also drastic.
The bill shifts responsibility for making low-interest student loans to the government, ending the federal subsidies and guarantees now given to private banks that lend to students.
The new law ends the role of private banks as middlemen, cuts program costs, and channels the extra money to the neediest students, ending years of controversy over a system in which both the government and the private sector were major players.
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I'm all for this change, because I am all for the government providing a given service at least taxpayer cost. The evidence was very clear that it was cheaper for the government to offer a guaranteed loan directly than to pay the subsidy to induce a private bank to do it, at least in the way the program was run before.
But fans of subsidized student loans shouldn't delude themselves about what this will do to their favored program. Lots of people chose more expensive private loans over direct loans because those fat guaranteed profits induced the private banks to reach out to those people and make it easy for them, much more so than the direct loan program did. While there is good evidence that the government can run the direct loan program more cheaply, there is zero evidence that it is as good at marketing and customer service -- quite the contrary. So I expect that the total number of students served and dollar value of loans disbursed will go down (comparing the new public-only total to the previous public+private total). I'm all for that too, but presumably most progressives aren't.
But fans of subsidized student loans shouldn't delude themselves about what this will do to their favored program. Lots of people chose more expensive private loans over direct loans because those fat guaranteed profits induced the private banks to reach out to those people and make it easy for them, much more so than the direct loan program did. While there is good evidence that the government can run the direct loan program more cheaply, there is zero evidence that it is as good at marketing and customer service -- quite the contrary. So I expect that the total number of students served and dollar value of loans disbursed will go down (comparing the new public-only total to the previous public+private total). I'm all for that too, but presumably most progressives aren't.
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