Vocaboly.com

[Ray Woodcock]

Another article on student loans in today's New York Times
(http://www.nytimes.com/2004/06/14/opinion/14PETR.html?th). Excerpts:

Putting Students First
By THOMAS E. PETRI

Published: June 14, 2004

For years Republicans have supported the government's other loan
program, the expensive guaranteed student loan program, because it
uses banks as middlemen .... But the direct loan program, which lends
directly to students from the United States Treasury, has proved to be
far less costly. ...

[W]hen I entered Congress in 1979, I was inclined to believe that a
student loan program that encourages private banks to lend is a better
deal for taxpayers than the government lending directly. But then I
learned how our guaranteed student loan program works. No fiscal
conservative or free-market supporter could justify embracing it. ...

For banks, it's a guaranteed return — and profit — with almost no
risk.

This is hardly a market-oriented approach; it's more like a
government-assistance program for lenders. Tax dollars even go toward
special payments that ensure banks don't lose money when interest
rates rise. What's more, interest paid on the loans is set in law,
above lenders' costs. And if a borrower defaults on a loan, banks have
a government guarantee that they will get their money back. ...

Most of these rules, by the way, are set by Congress; no market forces
are involved. Moreover, no competitive bidding takes place to
determine who can provide the loans at the lowest cost to taxpayers.
All banks are entitled to the same subsidies.

As one would imagine, the savings under the direct loan program are
immense, actually earning money for the Treasury in some years. Over
and over, government budget analysts — both in Congress and at the
White House — have concluded that direct loans cost the government far
less (including the costs of contracting with the private sector for
loan collection) than guaranteed loans. ...

Thomas E. Petri, Republican of Wisconsin, is a member of the House of
Representatives.