Each year the government gives billions to banks that provide student loans. A newly passed House bill gives that money directly to students. Is this good business?
Kevin Carey Yes. The federal government will spend $87 billion over the next 10 years subsidizing banks to give student loans. All this does is give that money back to students in the form of larger Pell grants. The private market for unsubsidized loans will still exist. Right now the government subsidizes the lenders and guarantees the losses. That's hardly an unrestrained free market.
John Dean No. This bill eliminates competition [for subsidized loans] and adds $1 trillion to Treasury borrowing over 10 years. It underestimates costs. It doesn't consider the risk that loans won't be repaid and eliminates guarantee agencies, which work to avoid defaults. So default rates will likely go up, raising costs and wildly throwing off the cost estimates.
When the subsidy program began in 1965, most students couldn't get a loan. Now that every 18-year-old has a credit card, it's a needless giveaway. The Senate should take a closer look at cost estimates before sending the bill to the president.