The reason why the Feds are involved in the student loan business is the high default rate. Banks do not make student loans at the 3 to 4 percent rate that Kinsley wants because the risk would too high. There are lenders who make student loans which are entirely private (no Federal involvement at all), but their interest rates are not at 3 to 4% either.

I would like to know what law the Republicans have passed that prohibits the Education Dept from encouraging the use of the Direct Loan Program. You can go to the Department website and find out all you want about Direct loans. Even if all the loans you have are through FFELP (Family Federal Education Loan Program, which Kinsley loathes), you can always consolidate through the Direct loan program and gain the attendant advantages that way. (The interest rate is no lower than the FFELP rate, though).

You forgot -

Republicans are evil.

College is necessary.

Therefore, Republicans must be doing something evil to colleges.

Therefore, reality doesn't matter, because this MUST be true.

The Republicans don't have to pass a law. Because the Fincancial Aid officers who work at the Universities are pushing the high interest private loans over the government direct loans. Why? Because they have been getting millions of dollars worth of kickbacks from the loan companies in the form of illegal stock deals, trips, and who knows what else. Read the relevant articles in the NY Times over the last eight months.

Three aid administrators were given the opportunity to buy discounted stock. They have been rightfully fired. Aid administrators don't push private loans; 75% of schools do "push" the other federal loans program, FFEL, administered by private lenders and which usually offer students a better deal than direct loans. In fact, if you speak to aid administrators as I have, you'll know that they're quite worried that due to direct marketing techniques by some lenders, their students are not using all their subsidized loan options before getting unsubsidized private loans. Millions in kickbacks? Please. "Kickbacks" is a charged word that looks good in news releases and newspapers but is wrong. Basically they called everything a kickback, including things that benefited students like a pool of funds for students with great need and for whom even subsidized loans were a burden. See my post "Biased and Misleading" for related comments. Note, though, that The Times and Post took no steps during those 8 months to see if the Cuomo and Kennedy charges were merited. Not surprising, since their editorial pages have been frothingly anti-lender for years. The Post owns Slate, so it's little wonder Kinsely wrote this article, which the Post also printed Saturday.

Perhaps the reason why 75% of us students are going through intermdiate banks instead of the direct loan prrogram is that the loans from banks are a better deal for the individual. The starting interest rates are exactly the same. Depending on the bank lender that you choose, you can get origination fees waived, and/or reduced interest rates for successfull on-time or even on-line payments. Frankly, I don't see why the 25% are still going the direct route...

Law Student:

If banks are offereing adjustments to origination fees and also interest rates, this kind of tells you something right away; the high interest rates and origination fees are not needed. The commercial interests took Direct Loans to court to force them into following the rules which they now discount against. Direct Loans still offers the direct payment discount and used to have a 13 month on time payment schedule until the banks whined.

Hope you are never late with the banks, they will dock you immediately, Direct Loans will not.

I'm just saying that there's no reason to expect separate people to make their individual decisions based on what's collectively a better deal. If the direct loan folks want more business, they should take a lesson from the banks, and offer better deals--if banks are still making enough profit after the discounts, then so can the feds. Consider it a marketing expense. There is nothing on the direct loans website about any discounts for ontime or online payments--if those programs exist you must find out after you get the loan and are issued a pin #--a little too late.

bottomfish:

the reason the Fed is involved in student loans is because they can do it at 25% of the cost of what provate lenders can . . . $4 to $14. It does not make sense to ustilize middle people to make student loans.

Futhermore the rates for Direct Loans are set by Congress which prevents them from offering lower rates. When Direct Loans attempted to do thh SAME as Banks, the bans went to court stating Direct Loans had no authority to offer discounts.

"The Education Department fought back. Richard W. Riley, then the secretary of education, tried to make the direct lending program more competitive in 1999 and 2000, by reducing origination fees and interest rates. The private lenders sued, saying Riley had no authority to do this because these rates were set by Congress under the loan legislation. (Last year, lawmakers set the interest rate on new Stafford loans, one of the most popular federally guaranteed loans, at 6.8 percent; many private lenders offer to reduce that rate for borrowers who make payments on time or meet other goals.)"

The market place is not a level ground for competition; however, I for one would not wish banks to be in the student loan business. To predatory. As we can see by the present scandals, banks are unregulated and offered far to many inducements to schools seeking to "BUY" preferential treatment.

Lawstudent:

You speak out of hat and quite clearly do not understand the difference between Direct Loans and Private Lending Institutions making student loans. The later being unfettered by Congress and also going to court to prevent Direct Loans from becoming competitive with them. Taking a lesson from private banks is out of the question.

Having consolidated loans for many students and going to bat for those by negotiating with schools, the discounts did exist until the lawsuits started. It seems as if the banks have won and now are involved in scandel well beyoung the cost to finance them in making the initial student loans in a 4 to 1 ratio. Kind of says a lot for private industry and its ability to scam students and the public in favor of a few at schools and themselves. Disgusting to say the least.

Again I caution you in dealing with the banks. You may still be able to consolidate under Direct Loans, who are far more liberal, once you leave law school. Diret Loans may be slower and dumber; but, they are not predatory.

run,

remember when the treasury went to the markets around 1980 or sumpthin' and were told the short term borrowing interest rate was approaching 25 percent?

for the fed?!!!!!!!

the draconian interest rates that paul volker put in place slapped the government back into reality...

at least now, we realize that government is criminality without the personal risk...the private sector guys meet you in the parking lot and ask for the monthly payment (all interest) when things really matter.

what is college worth? ask gates and dell and a couple million others.

there are more direct ways to become credentialed...

unless you're an academic and it's all makebelieve.

greenspan thinks it's all about strategic oil reserves anyway...go figure. china avoids the markets altogether by helping blow-up our embassies in east africa, murdering people in darfur and nurturing their cabana boy putin.

then again, maybe i'm too optimistic...?

le-idiot:

Clark seemed to feel it was about the Euro becoming the currency of exchange in the world economy for oil. Well its close now as more and more countries switch to the Euro. In any case it is about oil and how it gets paid for, whether by the Dollar or the Euro.

Nice to see you again.

the euro...oh!...the german mark by any other name?

can't prop that up indefinitely...better get their wash baskets limbered up! to carry those euros to the bakery...

those krauts...so afraid...so delusional.

good to see you're still truckin'...best regards.

run75441:

There's a more fundamental reason why the direct loan program is not able to offer discounts on interest rates.

It's a government agency and every dollar not charged borrowers is another dollar added to the federal deficit. That comes with the territory. There's no way around it.

The Park Service could knock a dollar off the admission ticket for a park to compete with, say, Disneyworld, but it would increase the deficit. On the other hand, the concession firm that runs a restaurant at the Grand Canyon can offer discounts, because it's out of its margin.

If it was okay for the direct loan program to offer discounts, what would prevent them from charging NO interest? What the hell, it's not their money.

ham,

what if the japanese tour busses at the grand canyon circled at both ends of the canyon and kept the place for themselves?

then, what if the illegal immigrants formed an alliance with them and openned their own burrito franchises using the euro and yen only?

then, like mr. kinsley wrote an op ed piece in the guardian supporting the japanese investment in 'another american hole in the ground'?

then dubya responded by sending the sixth fleet up the colorado river and making everything american and right again?

possession is 9/10ths of ownership...right?

couldn't dubya issue more bonds? he said that they were just paper anyway?

what's the margin on staying in the deal and not letting anyone back in the deal that has shown bad faith toward the united states?

or should we just underwrite health care costs for non-citizens and anyone with dependants below the age of 18?

come on, help me out here?

is the euro overvalued because it's really the german mark, and the germans are nuts about 1930s inflation?

or are they propping it up on margin?

Alex:

Not the bank's money either and much of it is financed by the Fed at the same time Direct Loans pays out. Big differentce is the cost to loan through middle men which is 4 times that of the gov. Similar to Medicare. If Direct Loans does it, more money can be loaned out to students than if the banks do it.

The fundamental reason for the lawsuits by the banks was to prevent Direct Loans from competing with them. If banks can discont that much, then why set the rates so high in the first place if the Fed backs the loans?