Wednesday, April 15, 2009

Obama on Student Loans

Dick Morris has often struck me as being a bit petulant. He reminds me of the nerdy kid in grade school who thought he was cool, but never quite was. Come to think of it, I have probably described the majority of my law school class - inadvertently of course.

That said, Mr. Morris is making a lot of sense when it comes supporting President Obama's plan for student loans. The President called for a 100 percent direct-lending program that would take student lending out of the hands of banks and set up direct lending between the Federal Government and individuals.


The upshot is that the Feds stand to save around the neighborhood of $100 billion by cutting out the middleman vested in private lenders. The federal government already subsidizes the banks' lending, and guarantees the loans they dole out. Removing the banks would do little more than strip their ability to charge government for handling the program. It would also create a 'quasi-entitlement' for needy students who would be guaranteed some type of loan to cover the costs of their education. Suffice it to say, President Obama has had worse ideas.

Dick Morris's column explains the private lending process and outlines some of its more nefarious aspects - including the utter ruthlessness of private loan officers and collections agencies.


As a current student with much future debt on the horizon, for once, I am glad to support this aspect of the President's agenda.


Christopher Mallow said...

I would also hope that, with a direct-loan-only program, the government could provide a bit more oversight over the costs of higher education. My view is that colleges and universities have been raising tuition rates consistently and without any type of checks, primarily because they know that the government backs the loans most students user and thus will provide the students what they need to attend. Many private schools, particularly the vo-tech-type "colleges" that have sprung up over the past 10-20 years like U. of Phoenix, ITT Tech, and the like, have tuition rates that are outrageous and prey on marginal, lower-income students that will a) likely not get into a state school with a more affordable in-state tuition cost, and b) will be using loans to attend, regardless of cost. Since the student's or parents' focus is quality of education and not always cost, and knowing that they're paying over a long period of time (much like a mortgage), the students and parents do not hold these schools accountable for their increasing tuition amounts. (I've taught at one of these schools before and I could write a book on a lot of what I've seen.)

Many are screaming for greater regulation of the financial markets and banks, because "our money is at stake". Many of those same people decry "corporate welfare" and farm subsidies. I would argue that perhaps a total direct-lending program could help the government provide the same regulatory oversight of predatory practices not only of lenders but of the schools themselves, because it's still taxpayer money at stake there, too. I'm all for higher education for anyone who can get through it, but it shouldn't become like another mortgage for the student or long-term public dole for the colleges. Unfortunately, Democrats are fine just throwing money at problems, rather than addressing the root cause, so that means they'll probably just keep dishing out whatever the schools ask for.

Tory said...

I just have a sec so I can't give a complete reply, but your point about oversight is well taken. When I was an undergrad (and now to a lesser extent) I was totally in the dark about loans, repayment, and interest rates. I was a kid right out of small-town Oklahoma and had no clue what I was getting into. I don't think that my debt repayment will be that hard in the long-run but it sure would have been nice to have had some real guidance on what to do and how to defray some of the costs.

Your point that direct lending helps consumers make costs choices is also an important consideration. In a way, it puts the decision making power back in the hands of the person seeking the loan, and it makes the school's 'suggestions' more like an actual suggestion rather than the school telling the consumer how much to take out from their favorite lender. It's a bit convoluted, but I think that direct-lending could do a lot to help curb some of the confusion. It would certainly help simply the process for me.

Christena said...

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