By Richard Vedder
Representative Thomas Petri of Wisconsin is a thoughtful congressman, with whom I had a delightful dinner not too many weeks ago. His wife, Anne Neal, is one of higher education's greatest voices of reason in her capacity of president of the American Council of Trustees & Alumni (ACTA).
Representative Petri is promoting a great idea -- using market forces to determine the fees and payments made to loan providers, rather than having that administratively fixed by law or government bureaucrats. Rep. Petri is a Republican, but similar ideas have been endorsed by researchers at the Democratic-leaning Education Sector. Market forces, not political pressures, should determine the optimal pricing. Current proposals before Congress might lead us from moving from a situation where above market pricing means lenders are collecting abnormally high, monopoly profits (the view of many Democrats), to one where profits will fall dramatically, leading to a shortage of loan providers and a difficulty for students in obtaining funds (the view of many Republicans). A market approach avoids this difficulty, and eliminates the need to find what St. Thomas Aquinas would call, if her were alive today, "the just price" for student loans.
Of course, this is a second best approach, but probably the best that is attainable in the current political environment. In a perfect world, the government would argue that the financing of college educations should be handled the same way as the financing of cars, homes, business start ups and the like, with individuals going to private financial institutions on their own and applying for a loan without government interference (to be sure, these loan markets are not pristinely free of governmental distortions either, but they come closer than the college loan market). Why are college "investments" fundamentally different from other forms of investment? Having made this point, however, at least Rep. Petri is trying to introduce some sanity into a process that the Spellings Commission rightly called dysfunctional.