Student Loan Cliffhanger

Maybe the U. S. Department of Education should start listening to some of the free advice it gets. “The government must exit the lending arena and be replaced by an active and innovative private market with legitimate underwriting standards,” Jay Bowen wrote in The Atlanta Business Chronicle on January 11, 2013. “A variety of arrangements would be possible in this environment, including contractual agreements between businesses and students that revolve around future employment and cash flows of the borrower. While online learning will never completely replace the college campus, current economic realities mean that this avenue of highly individualized instruction at a fraction of the cost of the traditional model will continue to emerge as a legitimate alternative.”

“First and foremost, it is essential that we grasp as a nation how unproductive and costly it is when federal authorities try to dictate outcomes by aggressively intervening into the marketplace.” Bowen is president of Bowen, Hanes & Co. Inc., an Atlanta investment counseling firm.

            “From the same cast of characters that brought you a post office hemorrhaging $5 billion to $10 billion in losses a year, a school system with perpetually higher costs and declining results, and a housing crisis triggered by both government-sponsored enterprises and government-promoted lending policies, we are now witnessing a student loan crisis generated by flawed government policies that, as usual, will ultimately result in the taxpayer picking up the tab,” Bowen wrote. “A recent report from the Federal Reserve Bank of New York says the value of student loans outstanding is now close to $1 trillion, making it the largest and fastest-growing share of nonmortgage consumer borrowing.”

“Unlike other forms of consumer debt that have fallen, total student loans have grown by 75 percent since 2007.” Bowen sits on the board of the Atlanta based Foundation for Economic Education (FEE).

“Eerily similar to their obsession with homeownership, the federal government has been relentless in pushing to expand access to college by cutting out the private sector in loan programs and by altering repayment terms for borrowers via executive order,” Bowen observed. “Thus, students have been encouraged to borrow with impunity.”

“This has been on full display and continues to intensify as loans from the Department of Education have grown from $133 billion in 2010 to $157 billion in 2011. Late payment trends are also following a similar pattern to the subprime mortgage crisis. With new programs geared toward ‘income based’ repayment plans and forbearance timetables, it is increasingly likely that the federal government and thus the taxpayer will eventually be on the hook for tens of billions of dollars of loans that will never be repaid.”

 

Malcolm A. Kline is the Executive Director of Accuracy in Academia.
If you would like to comment on this article, e-mail contact@academia.org.