Wednesday, March 24, 2010

Is The Government Takeover of the Student Loan Market Helpful?

Buried in the House-passed health care legislation last Sunday was a government take-over of the student loan market -- billed as a new entitlement for students. (In reality, this bill represents a new entitlement for colleges and universities). The rationale behind eliminating free market lending for students and replacing it with a new government bureaucracy for student loans was that it will make colleges more affordable.

How will it possibly do that? In effect, having the government now a willing lender without the constraints that a free market lender would impose, means colleges and universities are now free to jack up their tuition and fees to even more astronomical levels. What the Congress has done is increase the demand without increasing the supply. The impact -- higher prices. So, colleges will become even less affordable than they are now. Eventually, students will be unable to pay the government back these ill considered loans (think Fannie and Freddie) and we will go in to workout mode. It is little wonder that colleges and universities were thrilled with this new entitlement for themselves.

The same logic is, of course, in place for the future of health insurance. Having mandated all manner of new costs on insurance policies, there are no market forces in place to keep insurance premiums from going through the roof. They will go through the roof. Then what? Then comes rationing. Hello to government bureaucrats deciding who (and when) American citizens can receive health care.

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