Though not nearly as well-publicized as health care reform, the federal government’s takeover of the student loan industry, which became law earlier this week, promises to have far-reaching economic implications. And, like health care reform, we’re only now discovering what the government has done to us.
The Cato Institute’s Neal McCluskey, for example, points out that the law essentially takes a bad situation and makes it much worse:
First, the leeches have hardly been burned off. Sallie Mae and a few other now-former lenders have been promised big federal contracts to service loans under the new regime, so don’t worry — they’ll still get theirs.
Second, though this isn’t a federal takeover of anything close to a truly private market, it is marginally worse, from a free-market perspective, than the status quo ante. At least until the recent credit crunch, firms in the guaranteed-lending program got their money through capital markets, keeping at least a small amount of discipline about whether students won the capital that everyone was competing for. Now students will just take their dough from the Treasury.
Third, the president’s goal of having a greater percentage of college graduates than any other nation in the world by 2020 — which this expansion of aid is supposed to help accomplish — is economically dubious. We already have far more four-year degree holders than we have jobs for them — to say nothing of whether we have the right four-year degrees for the jobs — and the greatest numerical growth in employment in the coming decade is supposed to be primarily in jobs requiring only on-the-job training. So what we are heading for if the president gets his profusion of sheepskins is not a stronger economy, but a much less efficient one.