Should the Private-Public Student Loan Partnership End?

Private student loan lenders are preparing to fight for their survival as the Obama administration seeks to end $94 billion in loan subsidies to private lenders that officials say could be put to better use by giving the money directly to needy students.

Revamping the student loan program could change how millions of college students finance their college education.

The government plan would change the way the student loan business has operated for the past 16 years. Currently, while some students do get loans directly from the Education Department, many others get their loans through the Federal Family Education Loan Program, through which private companies receive subsidies from the federal government. Students are directed toward one or the other, depending on school administrators’ preferences. President Obama would like all student loans to come directly from the government so that the enormous savings realized from the increased efficiencies of doing so could be redirected to low-income students in the form of Pell grants.

According to a recent Washington Post story, student loan companies claim the move would put thousands of industry employees out of work, increase the national debt and lower the quality of service to borrowers. Lenders insist that their marketing, customer relations, billing, and delinquent loan collection are important services, the New York Times reports. Supporters of the proposal say the move is long overdue, a no-brainer, in fact, and point out that the loan companies have collected lucrative fees with virtually no risk, since the government guarantees loan repayment up to 97%.

Detractors of the proposal include some lawmakers, several of whom represent the states where private student loan companies are based, who say the move would give too much control to government. The fact is, the government already had to step in to rescue the industry last year with the injection of additional funding to keep student loan financing alive. So why exactly do we need private student loan lenders?

I don’t know about you, but I’m getting tired of taxpayer money propping up private industry and I think private student loan lenders are dispensable. What’s your take?

Tags: student loans

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