EDITOR OF REDSTATE
A Money Losing Business Comes Out For Government Subsidy
It should be no surprise that an organization like the New York Times, which is a consistent money loser these day, is in favor of a government take over of the student loan industry. A group of people who have shown no ability to run a successful business tend to hate success. But their reasons for doing so are not just nonsense, but total distortions of reality.The Times writes, “The direct loans would not be handled by the government, but through colleges and universities, just as Pell grants are now.” That’s nonsense. If a student who has student loans financed via, say, Chase as I do and does not like Chase’s service, the student can go to Wells Fargo. In all cases the colleges and universities handle most of the dealings, but it is the backside of the equation the Times chooses to ignore.The Times continues, “Some lenders say the new system would lead to more student defaults, but contracts between the government and loan-servicing companies clearly state that the companies will be evaluated partly on how successful they are at preventing defaults.” Actually, there are greater defaults under the federal direct loan program than the private loan program. In fact, I was advised at a former job to just stop paying my direct loan because nothing would happen, unlike with my privately handled loans. I still kept up my payments, but I worked with a number of people who didn’t.I’ve also heard from friends in the credit reporting industry that credit companies routinely ignore unpaid federal direct student loans because of how the U.S. Department of Education treats students in default, i.e. they do nothing.The Times concludes with “By redirecting the savings into a variety of federal programs aimed at needy students — including the Pell grant scholarship program — Congress would be putting the money to good use.”Really? The Times does not define “needy” students. What about middle class students whose parents can’t afford the costs of the loan? And what about the escalating costs of college attendance? As we’ve noted before, the Democrats’ plan also calls for total debt forgiveness after 20 years and after ten years if the student goes to work for the government.Schools would have no incentive to decrease academic costs because no matter how much a student paid — and their repayment could be no more than 10% of their income — the loan will be forgiven.The Democrats’ plan makes no economic or financial sense. The New York Times is forced to grossly distort everything about it to make it sound the slightest bit reasonable.