Higher education costs continue to rise, and students are bearing more of the financial burden than ever before.
Many depend on financial aid, yet its availability is often a casualty of budgetary woes, and repayment terms have become more onerous.
At a time when global competition dictates an increased emphasis on education in the United States, it is time for the government to restructure the student financial aid industry.
President Obama is leading this charge with his proposal to increase college affordability while decreasing the cost to taxpayers.
Government coordination of student loans traces its roots to the National Defense Education Act of 1958, which saw the federal government distribute low-interest aid directly to schools for its students. This program was implemented after the launch of the Russian satellite Sputnik, driven by fears that Soviet schools had overtaken their American counterparts in math and science. Sound familiar?
This act was scrapped, however, in favor of the current system, the Federal Family Education Loan program, implemented in 1965. Rather than distribute aid via schools, this program grants subsidies to private lenders, including banks.
At a time when banks are receiving taxpayer-funded bailouts, it seems inappropriate that they are charging as much as 9 percent interest on student loans.
More importantly, there are no laws dictating when lenders can start requiring repayment. As a result, many lenders have started the greedy practice of requiring payments before the student actually graduates.
This is a bad practice from a practical standpoint. The current system necessitates that students start making payments before receiving their first paycheck, the main reason for attending college in the first place. This places an unreasonable burden on students.
The current system essentially positions banks and other lenders as middlemen, leading to wasted tax dollars in the form of administrative costs. This is where Obama’s proposal comes in.
Figures from the Department of Education estimate savings from axing the middlemen at about $15 million per day. The plan would also lower the interest rates charged.
Imagine if all student loans carried an interest rate of, say, 3 percent. Most importantly, payments would not begin until after the student graduates.
The concerns voiced frequently today about the U.S. falling behind other nations in math and science are similar to those of 1958. If we want to compete globally, we should better educate our workforce by making it more affordable for more peopole to attend college.
Not surprisingly, Obama’s proposal is already receiving vocal opposition, particularly from student lenders who derive large profits from these loans. Others are concerned that the Department of Education would in essence become a national bank. Finally, critics of all government programs are quick to point out how these programs are inefficient by default.
Higher education must be a national priority. We must not be swayed by these arguments. The way lenders have profited at the expense of students is disgusting, and the president has correctly called this, along with the cost to taxpayers from inefficiencies wrought by middlemen, into question.
So would loans directly from the government really be worse than private ones? No. In fact, they would be more beneficial to students.
President Obama has asked federal employees to submit ideas to cut costs and increase efficiency within all departments of the federal government. Eliminating the FFEL in favor of a more efficient system of equal scope would help to achieve this end.
The U.S. must reclaim its place as the bastion of academic achievement, so the current system of educational financing must be revamped. Now, if only we could do something about the K-12 public schools.
Kevin Hollinshead is a sophomore political science major. His column appears Mondays in the Collegian. Letters and feedback can be sent to firstname.lastname@example.org.