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 expand.

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)

Why Are Americans So Bad at Saving Money?

The U.S. is particularly miserable at putting aside money for the future. Should we blame our paychecks or our psychology?


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

The Death of Film

You'll never hear the whirring sound of a projector again.

Video

How to Hunt With Poison Darts

A Borneo hunter explains one of his tribe's oldest customs: the art of the blowpipe

Video

A Delightful, Pixar-Inspired Cartoon

An action figure and his reluctant sidekick trek across a kitchen in search of treasure.

Video

I Am an Undocumented Immigrant

"I look like a typical young American."

Video

Why Did I Study Physics?

Using hand-drawn cartoons to explain an academic passion

Writers

Up
Down

More in Business

Just In