Looking the Gift Horse in the Mouth

Published August 22, 2008

In your article “Thanks to the Government, Student Loans Are a Better Bargain,” Kim Clark encourages new college students to take advantage of federal student loan programs in the aftermath of the Sallie Mae bailout. While students should take advantage of every financing option available to them, it’s difficult to understand why the federal government is assuming the risk of so many new loans when Sallie Mae is already suffering under its current burden.

It is easy to attempt to solve a problem by throwing more money at it, but rarely is that the right solution. Unfortunately, the government is taking just that approach: Under a new federal loan stabilization program, the Department of Education has sent new funding to Sallie Mae in the form of a loan to provide up to $20 billion in new government-backed loans this year.

Sallie Mae spent more than $640,000 lobbying for government intervention in the student loan industry in the second quarter of 2008. The industry’s reliance on government aid ultimately encourages poor spending habits, stifles financial innovation, and discourages prudent long-term saving by students and their parents.

Matthew Glans ([email protected]) is a legislative specialist for The Heartland Institute.