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The current federal student loan system is a financial drain on both the goverment and aspiring college students. Projections indicate that the federal government will incur a loss of 19 cents for every dollar of federal loans it manages over the next decade. This situation represents a deficit for the federal government and a disadvantage for individuals seeking higher education.
The most effective solution lies in removing the federal government from the student loan process, advocating for the privatization of the student loan market.
Private Loans Will Not Restrict College Access
The existing system offers no benefits to anyone involved. Privatizing student loans would not limit who can attend college, but rather refine the criteria for pursuing specific degrees and attending particular institutions.
Currently, private lenders facilitate just over 7% of all student loans. Under a privatized system, private loans would continue to be offered based on established criteria, with a student’s projected ability to repay the loan influencing its availability and interest rate.
This approach would prevent individuals from undertaking degrees with a negative return on investment from overpriced universities. Though, it would still enable access to higher education for all, provided there is a realistic prospect of loan repayment. Consequently, universities would face pressure to reduce exorbitant tuition fees for degrees that do not yield financial returns, or at the very least, would primarily serve students from affluent backgrounds who can cover costs upfront.Following the initial disruption caused by the discontinuation of federal loan programs, universities would need to become more competitive to attract top students.This would likely involve measures such as reducing administrative staff, cutting funding for non-essential departments, and implementing other cost-saving strategies to enhance value for students.
Reintroducing free market principles into the cost of higher education would benefit both students and the government. It would also curb the extent to which individuals commit to loans they are unlikely to be able to repay. The only entities that would experience a reduction in their current standing are inefficient university administrators and employees within the Department of Education. This outcome appears to be a positive growth.
Dace Potas is an opinion columnist for USA TODAY and a graduate of DePaul University with a degree in political science.
