Here’s a dirty little secret: the government profits from student loans—big time. Annual student loan interest revenue to the federal coffers amounts to $29 billion.
Well, before you count the cost of loan forgiveness and defaults anyway. But, in government, your accounting doesn’t have to add up. A gain in one budgetary column need not be reconciled to a loss in another.
Public lender #1
In continuation of my two previous posts on the subject of student borrowing, here is higher education policy proposition #8:
The government should not be a public lender and should not benefit financially from student borrowing.
What’s wrong with this system?
From the inception of US government-subsidized student loans in 1965, banks made the loans and the government provided guarantees, interest subsidies, and in-school repayment deferral. In the wake of the 2008 financial collapse in which banks were implicated for their irresponsible practices and rapacious profiteering, Congress passed legislation in 2010 to install the US Department of Education as the exclusive government-subsidized student loan program lender, relegating banks to a still-profitable loan servicing function.
Proponents of the bill cited the merits of reallocating lending proceeds to beef up the Pell Grant program. Opponents decried another government takeover. After all, government had done such a great job with Freddie Mac and Fannie Mae it made perfect sense to hand over student loan administration to it as well, right?
Incentive to indenture
I would say the only thing worse than setting up banks with a huge incentive to profit from guaranteed loans is a government with a huge incentive to profit from guaranteed loans.
Here we have institutionalized hypocrisy. On the one hand, we decry galloping student loan accumulations and defaults while lollipop-peddling legislators are laughing all the way to the voting booth.
Who profits indeed?
To state it quite starkly: there is plenty of evidence students don’t profit from borrowing, and plenty of evidence the government does. This should not be.
In summary, we need to pursue a financial aid policy that, (a) levels economic access to college for all who qualify; (b) promotes an ethic of earning; and (c) eliminates incentives to borrow or to profit from borrowing.
Next: the government and quality assurance
Next time, we turn to the matter of the government’s interest and role in educational quality assurance. Stay with me.
Fresh gleanings to fuel your leadership awareness, reflection, and conversations …
“Many Americans are more worried about their reputation than their conscience.” So says a new LifeWay Research study. What does all this mean for how we minister to and biblically equip students for ministry to a shifting culture? This brief article by Christianity Today’s Bob Smeitana may help you get started thinking about it.