An op-ed by Gail Collins in today's New York Times discusses the need to reform student loans. After looking at the private loan sector, she then turns to the federally-guaranteed loans:
This is a system that goes something like this:We encourage you to learn more about the President's proposal, read the entire editorial and review the highlights from our recent hearing on this subject.
Are you with me so far? Wait, I see a hand waving back there. What’s that, sir? You want to know why the government doesn’t just lend the money out itself? Excellent question!
- We the taxpayers pay the banks to make loans to students.
- We the taxpayers then guarantee the loans so the banks won’t lose money if the students don’t pay.
- We the taxpayers then buy back the loans from the banks so they can make more loans to students, for which we will then pay them more rewards.
The White House estimates that it could save about $94 billion over 10 years if it cut out all the middlemen. And it has the basis of a system in place, since the Department of Education already makes a lot of direct loans to students.
