|
Monday, September 17, 2007
Student Loans Get The Kinsley Treatment
Michael Kinsley has a great article on the student loan "industry"- another example of privatization that costs more money than when the government does it itself (other examples include Medicare Advantage and the IRS private debt collection program). Behold the power of private enterprise and all its efficiency.
If you know anything at all about the federal student loan program, you will not have been surprised by the scandal of recent months. The only amazing thing is that it has taken so long to arrive. Here's how the program works: Banks and other private companies lend money to students. The federal government pays part or all of the interest -- currently 7% or 8%. The government also guarantees the loans.
What is wrong with this picture? Well, the government itself borrows the odd nickel to finance the national debt. This borrowing, obviously, is also guaranteed by the government. For that reason, it carries an interest rate of only 3% or 4% If the government can borrow money at 3% or 4%, why should it be paying 7% or 8% for the privilege of guaranteeing loans to someone else? Wouldn't it make more sense for the government to loan out the money itself?
Incidentally, your Congress is now hard at work trying to reform this program, as well as Medicare Advantage and the IRS private debt collection program. You can give them a call toll-free (1-866-544-7573) to make sure they finish up this important work.
Update: To be clear, that phone number is intended for calls related to SCHIP expansion and Medicare Advantage reform.
Posted by Matt Lewis
|