To keep the money flowing to student borrowers, the government began buying the loans from private originators last year. But this larger federal role was intended to be temporary, with an expiration date next summer. The news from Washington now is that rather than scaling back federal involvement, the pols want the U.S. Department of Education to be the exclusive banker to America's college students.
What happens then? Well, first of all, there's the "rigged government accounting that disguises the cost of making below-market loans to unemployed 18-year-olds," which allows Democratic leaders to inflate the "savings" they would generate by instituting this plan. You got that — the government actually thinks its will be saving money here, despite official CBO estimates of the program's nearly one trillion dollar price tag. And of course, these new loans will be subject to government forces instead of market forces:
When the government hires contractors to collect on its loans, it pays them for simply calling the borrower, regardless of the result. Private lenders, on the other hand, make money from a performing loan and have a greater incentive to do careful underwriting and aggressive collection.
Existing government college loans aren't popular because parents and students simply don't like dealing with unresponsive government bureaucracy.