Learning to borrow and spend

A shift toward Federal student lending may broaden accessibility to higher education at the cost of affordability.

President Obama is poised to kill two birds with one stone in nationalizing the quasi-private student loan industry. The move would inject another shot of capital into clogged credit markets already beginning to limit studentsâÄô lending, and, according to Education Secretary Arne Duncan, save taxpayers $4 billion a year by eliminating subsidies and loan-default safeguards currently guaranteed to private student lenders. The Department of Education is buying a hefty responsibility as it allocates and spends $84 billion to buy private student loan accounts. Loans are tricky business, with the failures of unbridled private subprime lending still freshly in mind, a radical swing in favor of public ownership of student debt may ultimately fail to bring the cost-effectiveness proponents found the policy upon. If the newly expanded direct Federal lending is any improvement, loans will become more readily-available and more affordable. Low-interest loans with high rates of default donâÄôt easily translate into a fiscally self-sustaining model. The president recently called on every American to pledge one more year of education beyond high school, a lofty goal Washington appears dedicated to realize. The call implies an era of easy money for students and broader demand for education which may ultimately drive tuitions higher. Assuming students spend the money loaned to them ostensibly for education in a prudent manner, the public education program will whir with efficiency. Such developments are ideal at best: college students, like America at-large, spend with an âÄòeasy-come easy-goâÄô mentality. Most likely, under these conditions, President ObamaâÄôs student loan overhaul means the fiscal future of higher education will be largely a specter of the recent past: willingness to accept increased student indebtedness and higher tuition rates for increased accessibility.