Loan masters

More

The Obama administration is attempting to get private banks out of the student loan business.  How much will this really save the government?  Liberals like Matt think quite a lot.  I'm skeptical.

It's not that I particularly care whether the government guarantees the loans, or makes them directly.  Frankly, I think the whole idea of government sponsored student loans, and possibly even grants, is iffy, and suspect it's done little more than inflate tuition costs.  But I don't see any a priori reason to believe that the private sector is doing a bang-up job.

That said, the government is not a bank.  Originating loans is not merely a problem of issuing some t-bills and funneling the proceeds to students; it requires a fairly large administrative apparatus to manage the applications, disburse the money, track the funds, oversee repayments, provide customer service to borrowers, adjudicate requests for forebearance, collect bad debts, close out the loans and accurately forecast the need for all of the above.  That's why government loan programs, from VA loans to SBA assistance to student loans, has traditionally been handled by banks rather than directly through the government.

I'm not predicting that it will be a debacle, although it could be--it's a lot harder than it sounds to start up a bank, which is why it doesn't happen that often.  But I suspect that we'll find that the money the banks skimmed off goes to pay our own staff.  Banking operations have scale and synergy; the government programs free ride on competencies developed to service other loan areas.  Reinventing the wheel rarely proves as lucrative as it looks.

Update:  Yes, I'm aware the government makes direct loans.  I'm sure it's lovely.  I just don't think it will be particularly cheap to go from servicing a few big schools to a zillion little ones.

Jump to comments
Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

Get Today's Top Stories in Your Inbox (preview)

What Do You See When You Look in the Mirror?

In a series of candid video interviews, women talk about self-image, self-judgment, and what it means to love their bodies


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.

Video

What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.

Video

Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.

Video

Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.

Video

Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.

Video

The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air

Writers

Up
Down

More in Business

Just In