Gov't may be chief student-loan source
TEXT OF INTERVIEW
Bill Radke: The U.S. Senate is considering pushing private lenders out of the student financial-aid business. The legislation has already passed the House. It would effectively make the Education Department the dominant source of student loans. Republicans say they don't want the government that involved in college financing. Los Angeles Times business columnist David Lazarus the real problem for him is how much the loans will cost. David, good morning.
David Lazarus: Morning.
Radke: So how should we feel about the federal government being the source for student loans?
Lazarus: I don't really have a big problem with that when you consider that it's the federal government's job anyway to make sure that everyone at least gets a high-school education. So who should be making the call as to who get a college education: the private sector or Uncle Sam? I don't have any problem with Uncle Sam doing it.
Radke: So if the federal government is the big dog, does that mean students benefit from better rates?
Lazarus: Well that's the big question because right now the rates aren't very attractive at all. In fact, the rates for the loans given under this program -- so these are mandated by the federal government -- range from 6.8 percent for some undergrad loans to 8.5 percent for graduate-school-level loans. Now these are very high when you consider that the market for 30-year mortgages, at the moment, is about 5 percent or less.
In fact, I was speaking the other day with the CEO of Edamerica, which is one of the largest providers of student loans out there, and he said, "I don't get it. These rates are way beyond what I'd like to be charging. I'd like to be charging market rates, but I can't because the federal government says we need to peg the loans at this level." That means a lot of students and a lot of recent grads are paying way above market rates.
Radke: So why doesn't the government help out students? A student bailout?
Lazarus: Well a student bailout. Exactly. Why not? Because we help homeowners, we help banks, we help carmakers, we help insurers. Indeed students would probably be a good beneficiary of such largess. The problem is it would take an act of Congress to lower these rates. Congress clearly has its plate full with other things. But considering these are the leaders of the private sector and the public sector in years ahead, probably a good investment for taxpayer money.
Radke: Los Angeles Times business columnist David Lazarus, thank you.
Lazarus: Thank you.