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Student loan rip-off

The cover story in this week's issue of U.S. News and World Reports, Big Money on Campus, is about student loans. The hypothesis of the article is that the Federal Family Education Loan Program, which authorizes private lenders to issue federally guaranteed student loans, is a big taxpayer rip-off.

According to the article, Sallie Mae, which was formerly a government sponsored corporation but is now in the process of being privatized, earned an impressive $792 million last year, and Sallie Mae's CEO, Albert Lord, received $33.6 million in salary, bonus, and stock option payments. Most of Sallie Mae's profits come from the student loan business.

It's hardly surprising that a federal program is a big taxpayer rip-off. In fact, the surprise might be finding a big federal program where the tax payers are not being ripped off!

So far, the article in U.S. News has done a great service to the American taxpayer by pointing out how this government program is lining the pockets of big corporations like Sallie Mae. This is business as usual at the federal government, where corporations have lobbyists and donate money to politicians' campaigns, but where there is no one representing the taxpayers on most issues.

Most unfortunately, the article does not go very much deeper than this. The article suggests that the cure for the problem is that the federal government run the student loan programs directly, and cut out the middle man.

The article fails to ask the basic question of why the federal government is involved in this business at all. If the colleges the students were attending really offered such a valuable proposition to the students, then I'm certain that the colleges themselves would be able to arrange loan based financing.

The article mentioned how the cost of college education has been increasing faster than the rate of inflation, but the issue of why was never addressed. I believe student loans are part of the reason. By making more money available to students, this just gives the colleges the leeway to raise tuition even more.

I know it's very anti-mainstream to question the value of a college education, but I'm going to go ahead and question it anyway. My experience is that the majority of college students are just in it for the piece of paper they get at the end which they think will be a ticket to a "good job." Yet we have so many college students graduating with no job awaiting them at all. And then to add insult to injury, they are burdened with student loan payments of hundreds of dollars per month. This is debt that can never even be discharged in bankruptcy.

How are we benefiting society if we make kids get themselves deeply into debt so they can obtain the same jobs that people obtained a generation ago with no college degree at all? Student loan proponents will say that without student loans, people will be denied the opportunity to advance themselves. I say that without federally guaranteed student loans, the bright students who would be able to benefit from a college education will still be able to obtain funding. The marginal students, who don't belong in college anyway, will also be better off because they will be able to get the same job they would have gotten anyway, except they won't be burdened with having to pay back student loans.

posted Wednesday, October 22, 2003