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A good businessman or a good salesman?

In the pending argument over the interest rates charged for student loans, Mitt Romney has already capitulated, deciding to go against conservatives and support Obama’s proposal to extend current rates, 2.36% (depending), rather than the forthcoming 6.8% (depending). http://www.direct.ed.gov/calc.html

Today’s outrageous student loan debt just doesn’t make sense to a businessman.  The debt some students take on is simply irrational.  Students can take on a maximum of $57,500 in direct student loans for an undergraduate degree and $138,500 aggregate for a graduate degree regardless of their ability to repay it.  Private loans are available beyond that.

A sensible businessman looks at the student loan situation and quickly figures out what is wrong.  The one party with the most credibility gets all the benefit.  The university gets cash up front and bears none of the risk.  The student, who is least able to evaluate the deal and the most trusting, takes on all the risk.  The money obviously comes from the Democrats through federal government.

What do the Democrats get out of this?  What the Democrats always get out of any deal, power.  Once the student signs the Master Promissory Note, the Government gets to make decisions in the student’s life.  The Government decides how much the student gets to live on by determining the repayment amount.  The Government helps the student decide to get married or not by changing the repayment rate based upon status.  The Government gets to influence where the student works through public service as defined by College Cost Reduction and Access Act of 2007.  The list can be endless depending on what new regulations or legislation is passed.

(A quick note to all Libertarians, saying it’s the students fault for getting themselves into the situation is necessary but insufficient to solve the problem.)

A good salesman looks at this deal and quickly figures out to get in on the act.  That’s what Romney did.  He’s a good salesman.  He knows that arguing with the Democrats on this issue is a losing exercise. He fears that expanding the argument would fail to make it through the press’s filter.

Unfortunately it puts to a lie Romney’s main talking point, that he understands business.  I’m sure he understand business in the practical sense but he is not a business leader.  A business leader, a Steve Jobs or a Jack Welch, would LEAD.  He would clearly and simply define the problem.  He would explain why other definitions are incorrect.  He would find a simple and effective solution.  He would be flexible in his terms to get the deal done.  Remember Herman Cain?

A simple, business minded solution to this problem is to allocate the risk to the party best able to assess the risk, the university.  Let the university decide if a four year degree in journalism is work the risk of repayment on a $50,000 loan or a graduate degree in speech therapy is worth $130,000.

PS – Let’s see how Romney handles the next issue, HR 4170 The Student Loan Forgiveness Act of 2012.  My guess?  Not so well.

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