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Student Loans and the Banks April 13, 2009

Posted by Dwight Furrow in Current Events, Dwight Furrow's Posts, politics.
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Currently, many students who apply for a student loan are directed to a private lender who loans the student the money and collects the interest. The federal government guarantees the loan, if the student should default, so there is no risk to the private lender. The banking industry is therefore subsidized to provide a service that the government could provide for less. Why is there a middleman in this process? The government could make the loan, with no bank involved, and save billions.

This is precisely what the Obama Administration has proposed—a program to make direct loans to students and bypass the banks.

Predictably, conservatives (both Republicans and Democrats) are up in arms, complaining that it is more “big government”. Apparently, it is OK to waste taxpayer’s money as long as private businesses can benefit.

And of course the banking industry and their lobbyists are hard at work trying to pick off enough Democrats to scuttle this proposal. And they may well succeed.

This is why I argue, in Reviving the Left, that traditional, moderate, middle-of-the road liberalism is complicit in the disasters that conservatism has wrought and must be radically revised. Moderate liberals want to give everyone a seat at the table and coddle every interest group, even when the interest being served is plainly wrong and contrary to the public good.

Why do the bankers have any standing at all to govern the administration of student aid?