Tuesday, August 28, 2007

"Student-Loan Companies Hope Congress Will Study Auction Proposal to Death"

From the Chronicle:
"Congress now votes on the levels of subsidy that are given to lenders participating in the federally guaranteed student-loan program. Advocates of an auction argue that it would use market mechanisms, rather than estimates by Congress, to set profit margins in the student-loan industry. Critics, including most lenders, argue that an auction would limit student choice to the lenders that emerged victorious in the government-run auction process."

Maybe student loan companies should worry about something else: both Edwards and Obama have come out in favor of eliminating their role in the federal student loan program.

5 comments:

Marky Marc said...

Two things come to mind:

a) Congress could set certain performance standards that lenders would have to follow in order to compete in the auction. Or Congress could pick winners who offer a combination of low rates and high-quality service;

b) the existence of the auction could encourage private lenders to lower their rates, in order to compete with the auction winners. Then, students would be able to choose among private lenders as well (if any extra private lending cost would offer special value).

Anya said...

I am not sure that private lenders will lower their rates to compete with auction winners. Private lenders can charge more in part because there are federal loan limits--they have a fast-growing market as "supplemental" lenders all to themselves.

Jonathan said...

I'm not an expert in this field but why don't we restrict government student loan subsidies to non-profit lending institutions? The big complaint here seems to be that the loan corps are getting fat on the backs of broke students or recent graduates. The private lenders would be faced with having to provide competitive rates or become non-profit themselves.

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Argue that an mart would limit student selection to the lenders that emerged victorious in the government,