Privatize Student Loans


Privatize Student Loans

The government should be out of the student loan business. Government involvement increases tuition. Is it fair for taxpayers to subsidize student loans to many who will never pay back in full because they are huge risks?  This sounds similar to government housing policy – lending to those least able to pay back. Students choosing study in majors that are not in demand by employers are huge risks. What is a better policy?

Students should get loans from private banks. If left alone banks will assess the risk reward of a student loan.  An aspiring engineer  with “A”s in calculus and 750 math SAT  would be a likely reward for the bank. Contrast this to Education Department bureaucrats. They poorly check returns on investment, in large part due to the fact that it is not their money they lend but taxpayer money.

What about the very poor?  Banks would still perform a similar risk reward assessment and the very poor would also get loans. And how else could one help the very poor? Via school vouchers which Mitt Romney  supports. Also via the FairTax which would eliminate regressive payroll taxes on the poor and provide checks to all up to the poverty level to mitigate impact of consumption tax. So the poor would at least live up to poverty level and be able to keep all of their paycheck free of federal taxes.

Maybe ( not sure about this ) one could argue for a federal role for student loans but it would have to be a tiny subset of who receives now. Surely this would have to be less than the 66% as reported by the Wall Street Journal (chart above).  Maybe only those at poverty level and a TBD minimal SAT score.

Mitt Romney thus could have made these points and put BO on the defensive. BO would have to explain (lie) why student loans do not increase tuition and why taxpayers should subsidize risky loans as they did for housing.


About economics501

1 - free market Capitalist; 2 - Fitness Entrepreneur; 56 years old, VP at an Investment Bank in NYC, ex Venture Capitalist, happily married with 2 girls. Education: Rutgers and NYU. I allow Ted Hruzd, my friend to blog at will here. He has many posts here. I have known Ted since we were both students at NYU. Ted also works for an Investment Bank as a VP in Equity Global Markets. ------------------------- I was very very Socialist leaning as a 22 year old. I then strongly believed in Gov role in helping the poor. However, as a USDA Child Nutrition Programs, I personally accounted for millions of fraud, abuse, and waste of tax payer money. I came to believe that the poor would be best served with less Gov programs and more with direct aid via tax system. Then after 5 years I became a free market capitalist, was a venture capitalist in 2007 and helped start 2 high tech companies. I dedicate this site to champion free market capitalism as the best road to Prosperity. Please join in. If you disagree, fine, but please post with dignity and class and be civil. Argue with facts always.
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