Bizblogger

Site for Free Markets and Free People

Thursday, August 20, 2009

Obamacare Preview: Single Payer For College Loans

The WSJ makes an appropriate case of what will come with Obamacare by reviewing the recent actions in the student loan market, which the government is in the process of socializing.

As in health care, intervention in the education market has gone hand-in-hand with rising costs. While government accounts for 41% of health-care spending, the feds guarantee or issue roughly 80% of student loans, subsidizing the rates and also offering a slew of grant programs. Not by coincidence, higher education costs have risen much faster even than in the health-care market. From 1982 through 2007, college tuition and fees increased 439% in nominal dollars, almost triple the rise in median family income, according to the National Center for Public Policy and Higher Education.

Soon the government will own the entire market, as private lenders with government guarantees become outlawed and private lenders can't compete with a cut-throat rate from Uncle Sam.

Along with outlawing government-backed loans issued by private lenders, the bill also strengthens the power of the "public option" versus pure market loans. Mr. Miller ramps up so-called Perkins loans to $6 billion from $1 billion, offering a fixed rate of 5% for borrowers who had largely been using the private loans. For another category of federal loans, Mr. Miller allows students to enjoy a variable rate if interest rates fall, and a cap in the event that they rise. This kind of heads-borrowers-win, tails-taxpayers-lose offer will be difficult for a private company to match.

When the government controls an industry, it's a recipe for runaway costs. Say hello to inflation, our new best friend.