Wednesday, January 17, 2007
 
Government, To Help Students, Reduces Number of Student Lenders
The rah-rah:
    The Democratic-controlled House voted overwhelmingly to cut interest rates on need-based student loans Wednesday, steadily whittling its list of early legislative priorities.

    The legislation, passed 356-71, would slice rates on the subsidized loans from 6.8 percent to 3.4 percent in stages over five years at a cost to taxpayers of $6 billion. About 5.5 million students get the loans each year.
The short term fix that will have unintended, and startlingly unforeseen, consequences:
    The House bill aims to reduce the $6 billion cost by reducing the government's guaranteed return to lenders that make student loans, cutting back the amount the government pays for defaulted loans and requiring banks to pay more in fees.
Let's see, Congress has just:
  • Cut the profitability by limiting the upside (the interest) that lenders can make.
  • Increased the risk by cutting out the government "insurance" against default. Instead, those defaults will have to be covered with the reduced margin for error (the interest; profitability is just unused margin for error).
  • Increased fees that the lenders have to pay to have access to lowered profit potential and increased risk.
That's the sort of fiscal and economic thinking that comes from not having to balance your checkbook.

So in 20 years, when student loans are harder to come by, the poor students will have to enter the workforce with naught but a high school education and, to those who can afford it, an Associates degree. To struggle, not make it very far, and vote Democrat.

Just kidding. The same people who strangle the privatesque solution today will determine that education is a right, like health care, and the government--they--should be the ones to fund it and mete it out.


- posted by Brian J. @ 7:35 PM
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