If default rates rise dramatically, accompanied by public outcries against ever-increasing college costs for the working class, those who have made unfortunate decisions to fund tertiary education through increasing reliance upon federally subsidized student loans -- loans administered via a complex "market" of private lenders, for-profit as well as ostensibly "non-profit," & guarantee agencies -- must rethink the course of action. We shouldn't encourage institutional dependence upon student loans.
>my point was that i do not see how a transition to a socialist
>society is in any way encouraged by a vocabulary in which we speak
>of the "state" as providing "free" education (or whatever) and,
>conversely, the same ill effects are accomplished by laying the
>blame for all at the feet of the state or some amorphous "ruling
>class". my other point was that we need to recognize how we are
>interdependent.
The more higher education becomes financed by student loans (individually incurred & individually paid back with interests), rather than grants & state funding for universities, the less public education becomes. As things stand now, we are heading in the direction of *further* privatization:
***** The Chronicle of Higher Education April 28, 2000 SECTION: GOVERNMENT & POLITICS; Pg. A34 HEADLINE: The Role of Market Forces in Providing Student Loans BYLINE: STEPHEN BURD
What will the federal government's dominant student-loan program look like in 2010?
Will it be one in which only a few mammoth loan providers have survived; where students and colleges have no choice of lenders; and the services that students and institutions receive is commensurate with the bargain-basement fees that banks receive from the government to make the loans?
Or will it be one in which there is vigorous competition among banks for affluent students at top universities who have good career prospects, while needier students at less-prestigious colleges, who have uncertain futures, must take out loans with double-digit interest rates or be left out in the cold?
Those twin specters are shadowing a group of college lobbyists and administrators, student advocates, and lenders who are leading a Congressional study to find ways to improve the guaranteed-student-loan program by minimizing the government's role and maximizing market influences.
In 1998, lawmakers drafting an updated version of the federal Higher Education Act were frustrated that they spent so much of their time debating what interest rate borrowers should pay on their loans and what profit margins banks should earn on those loans. They questioned why the government should be making such decisions in the first place.
With that in mind, Congress ordered the General Accounting Office, its investigative arm, and the U.S. Education Department to convene a panel to identify and evaluate at least three options for infusing market forces into the loan program. The panel's final report is due by May 15, 2001.
The group has met twice, and many of its members say introducing market forces could be beneficial, reducing loan costs for both students and the government. But the panel has identified dangers, too....
College and student leaders and lobbyists believe that the panel should develop proposals that rely on market forces to determine -- and sharply reduce -- lenders' profits. They are promoting solutions under which banks would compete with each other to deliver loans at the lowest cost to the government.
But most of the lender representatives on the panel advocate another approach. They envision a free-market loan program, in which the government removes restrictions on their marketing practices and other operations, allowing fierce competition in the marketplace to determine not only their profits, but also the interest rates and fees paid by borrowers.
Such an approach is anathema to the college lobbyists. They argue that low-income students, because they are at greater risk of defaulting, may well have trouble getting loans under a system that lets banks control who receives loans and at what price. "Any options that penalize people who are in the most-vulnerable situations are unacceptable to us," says Ivan Frishberg, director of the higher-education project at the U.S. Public Interest Research Group.
At the same time, lenders are not enamored of efforts that are designed to reduce their profits. "Let's face it, we've got a target painted on us. They are going to go after lender yields -- it's the easiest thing to do," Bill Beckmann, president and chief executive officer of Citibank's Student Loan Corporation, warned his colleagues at the annual meeting of the Consumer Bankers Association in December. "So it's in our interest to not just let this fall into a discussion of lender yields."
The panel may also be hampered by bad feelings remaining among some of its members over the work of a committee that met last year, and was made up of many of the same individuals. Congress had asked it to evaluate a proposal to base the interest rate for guaranteed loans on the rate for short-term commercial loans, and to move away from the rate applied to 91-day Treasury bills.
Lenders said they needed the change to raise enough capital to make student loans. Their investors favor the commercial index, they said, because its rates better reflect market conditions. But the White House and some college and student lobbyists said the proposal would increase the government's loan costs and amount to a financial boon for big lenders.
The study panel refused to endorse the change. But Republican and some Democratic lawmakers pushed the measure through by inserting it into a popular package of tax breaks that Congress approved just as it was ending its session in November.
Many of the college lobbyists and student advocates on the panel were enraged at the lenders' lobbying Congress to make the change even though the group as a whole had not favored it. They accused lenders, like Sallie Mae, of buying the victory with generous campaign contributions.... *****
Yoshie