Keep Private Market for Student Loans

Published April 20, 2009

Your April 14 editorial, “Better plan for student loans,” correctly identifies the current subsidies to private student loan providers as a source of waste and a key factor in increasing the cost of higher education. However, the Obama administration’s plan to nationalize student lending is not a viable alternative to a strong competitive market.

The methods being used to prop up the student loan industry mirror many of the recent government bailouts, following an economic model that emphasizes pumping government tax dollars into an industry in an effort to revitalize stagnant markets, leading in some cases to industry nationalization. Gross mismanagement by governmentsponsored enterprises like Fannie Mae and Freddie Mac was one of the primary causes of the current economic crisis.

Government subsidies may provide an illusion of fiscal health and political cover for politicians, but they do little to solve the systemic problems in America’s higher education system. The government’s more active role in student lending agreements places a great deal of new financial risk on federal coffers, allocating billions of taxpayer dollars to prop up a market that is currently highly unstable. Encouraging competition within the private market — not a government monopoly — is the best path for encouraging lower costs.


The Heartland Institute

Chicago, Ill.