CATO's Neal McCluskey has an OpEd in Forbes this week discussing the eminent problem of the SAFRA bill that is making its way through Congress relatively unscathed. McCluskey points out:
SAFRA's major problem isn't that it would kill guaranteed lending. It's that it would replace it with federal direct lending--which currently amounts to about a quarter of FFEL's size--and completely cut out private capital markets, making Uncle Sam your sole choice of lender. With the government acting as lender, there is no reason for economic realities to constrain student loans.Something that Mr. McCluskey didn't mention in his piece, but perhaps should have is the evidence of the role that government student loans have played in contributing to the arms race in academic spending, leading to higher tuition.
This has harmed those in the lower income ranks the most --whose ability to pay is constrained by financial aid. With ever-rising tuition, these students increasingly rely on student loans that generate piles of debt. While such students arguably increase their earnings power through "credentialing", amassing exorbitant amounts of debt to the federal government is no way to jump social strata. This reduces the chance of enterprising young graduates taking the risk to start their own businesses, as the reality of paying back their loans often creates a constraint on a student's dreams --taking backseat to a job that will pay the bills.