A Bid for Better Student Loans
Friday, February 9th, 2007Michael Dannenberg and Phillip Longman - A Bid for Better Student Loans - washingtonpost.com
This makes so much sense. Student loans are fixture in the life of every college grad I know. Having to pay some debt is accepted as part of getting an education now, but that doesn’t mean government shouldn’t be trying to get the best terms for college students. Dannenberg &Longman’s idea to have banks bid for the right to supply government-guaranteed loans to college students is a clean, market-driven response to growing debt-loads.Here’s why its brilliant (for banks, students, and government):
- Banks would have to compete based on interest rate and terms to gain the loan business. Interest rates might be given a floor to safeguard profitability, but they could still go much lower. We might also see more customizable payment schedules.
- Banks gain a limited monopoly on an already high-return, low-risk investment.
- The government gains a new source of revenue to fund grants and other education programs.
- If the new money is actually used for college grants, then government has less debt to guarantee and students have less debt starting out in life.
- It increases transparency: every bid could/should/would? be made public to insure honesty. Terms would be discussed and schools would have the alternative of using the governments Direct Loan program. Ideally, there would be campus-wide discussion before a college adopted a bank’s plan.
I’m going to keep an eye on this. While the President and Congress are talking about cutting costs, maybe they can talk about creating new revenue streams.