Nationalizing The Student Loan Industry

President Obama recently proposed taking over the entire federal student financial aid lending process, abolishing the bank-based student loan programs, in the preliminary budget for the 2010 fiscal year. When you read the new proposed budget, as well as the fine print in the recently passed Federal Economic Stimulus Package and Higher Opportunity Act, it’s clear that the federal government will now play a much bigger role in determining who gets financial aid and how much. 

We have, in my opinion, taken the first giant step towards nationalizing the student loan industry when few, if any, private banks are willing or able to issue student loans. The good news is that it will be much easier for some lower income students and parents to receive federal student loans, as the free federal financial aid form is being simplified. Moreover, a greater number of families will now be eligible for education tax credits or refunds.  The bad news is that we are likely to see historic levels of student debt, as some students and families will borrow more and more.

Working adult learners, who can take advantage of their company’s tuition reimbursement program, will be the real winners in the years to come. Between employer tuition reimbursement and the convenience of online courses, working adult students will have the tools needed to weather the upcoming storm.

But that’s my take on the proposed FY10 budget. More importantly, what do you think? Is it a good idea for the federal government to control ALL lending of federal financial aid money? Will the federal government provide the same, better, or worse service than a private bank?
 

Comments

[Angela Preston]

I'm not sure how I feel about this situation. My biggest concern is the "back log" of loans. If they are in full control are they going to have the manpower to expedite the loans in a timely manner? And what guidelines will the government use in determining who gets the loans ? Will there be any exceptions to these guidelines ? There are too many unanswered questions so I'm not sure how I feel about this yet.

[Ken Hartman]

Great points, Angela.
If you could name ONE federal program that the government administers that doesn’t experience massive cost overruns, endless bureaucratic nightmares, and wasteful spending (i.e., the $500 hammer), I would be open to discussing the practical and philosophical implications of turning over 100 percent of student leading to the Feds.

Can you name that ONE federal program??? Please??? KH