The differences between the public and private sectors are sometimes obvious. For instance, I recently walked through Duke University’s campus and on one street, to my left, was Duke’s private hospital. It is a beautiful, state-of-the-art structure that gives an impression that inside, really talented people are busy providing world-class medical care. Immediately to my right was the government-run VA Medical Center, a run-down and depressing monstrosity of brick and mortar. Medical care, DMV style. No, thank you.
But the public v. private dichotomy is not always so clear. Take the student loan industry. Although some people seem to be slowly recognizing that decades of federal loan programs have inflated tuition prices and devalued the college degree, many others don’t seem to be tracing those steps of cause and effect. They instead blame the so-called “corporatization” of higher education and a lack of state and federal funding (even though such funding is at an all-time high). They don’t believe, or more likely are not aware, that a system of private lending would go a long way toward helping students and taxpayers.
A new report on the private lending industry from the American Enterprise Institute, reviewed by George Leef in this week’s Pope Center Clarion Call, may help to bolster the argument of those who want to see an end to federal loan programs. Contrary to widespread belief, the private loan sector is a thriving, multi-billion-dollar industry. And unlike federal programs, in which virtually anyone with a pulse can receive thousands of dollars on demand, private programs have stronger underwriting standards to ensure a higher return on investment.
Stronger lending standards in the private sector don’t mean that poor or disadvantaged students are automatically disqualified. In addition to looking at FICO scores, lenders look at students’ degree programs, earning potential, starting salaries, etc. “The great thing about private educational lenders is that they have to pay attention to results,” writes Leef. “They operate under market discipline. They won’t lend to academically weak, disengaged kids who want to get a generic degree from a party school. They must discriminate between educational wheat and chaff.”
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