Submitted by David Starr on February 27, 2008 - 4:42pm.
Could Congress legislate even bigger interest rate discounts and lower fees? Sure, but it would cost taxpayers money, money Congress refused to spend last fall when it had a chance to reduce interest rates on unsubsidized Stafford loans.
That's the nature of a government-run program. When it spends money, it's spending funds which Congress must appropriate. When it increases spending the deficit goes up. The debt goes up. A nimble, consumer-sensitive pricing model is wholly foreign to a government-run program.
Private firms that have discretion over how they spend their revenues (margin, profits, etc) have that flexibility to price their products to gain market share and increase consumer welfare. Government-run programs do not have that discretion.
There is nothing nefarious about borrower benefits, including how they're paid for. For-profit lenders paid for them out of their yield. They came right off the bottom line. Since October 1, the margins on federal student loans have been close to zero. Many lenders are losing money offering federal student loans. There's little room for borrower benefits.
For years the private sector-based loan program did what the Congress did not do--offer loans at rates and fees below those set in law. Families saved money. No one stopped Congress from authorizing the Direct Loan program to match FFELP benefits dollar for dollar except Congress.
It's Really Not So Difficult to Understand
Could Congress legislate even bigger interest rate discounts and lower fees? Sure, but it would cost taxpayers money, money Congress refused to spend last fall when it had a chance to reduce interest rates on unsubsidized Stafford loans.
That's the nature of a government-run program. When it spends money, it's spending funds which Congress must appropriate. When it increases spending the deficit goes up. The debt goes up. A nimble, consumer-sensitive pricing model is wholly foreign to a government-run program.
Private firms that have discretion over how they spend their revenues (margin, profits, etc) have that flexibility to price their products to gain market share and increase consumer welfare. Government-run programs do not have that discretion.
There is nothing nefarious about borrower benefits, including how they're paid for. For-profit lenders paid for them out of their yield. They came right off the bottom line. Since October 1, the margins on federal student loans have been close to zero. Many lenders are losing money offering federal student loans. There's little room for borrower benefits.
For years the private sector-based loan program did what the Congress did not do--offer loans at rates and fees below those set in law. Families saved money. No one stopped Congress from authorizing the Direct Loan program to match FFELP benefits dollar for dollar except Congress.