Government Intervention In Higher Education

The goal of the GSL is to offer an access to higher education to students who can’t afford the tuition with their current financial situation. Since one’s future ability to pay is speculative without much credit history to consult with, the risks are more difficult to measure. Private lenders might demand a higher interest rate to compensate for the uncertainty since they can’t objectively see the social benefit of this program. The optimal level of the amount of loans provided and a reasonably low interest rate associated are difficult to achieve without the intervention of the government.
Another reason for government intervention is the liquidity constraint. It is easier for government to raise money (Treasury bond) and keep a certain …show more content…
As the largest private student loan lender in the nation, Sallie Mae has been accused of charging unfair fees and ridiculously high interest rate on student loans. Numbers of borrowers fall behind their payment and end up doubling their debts due to compounding interest rate. They are not eligible to claim bankruptcy and might face a lifetime of paying the loans they got when they were 19. There will be a delicate balance between the amount of government support provided and the amount of risks taken by the private sector. It’s hard to stop private lenders from exploiting profits from both borrowers and …show more content…
But using excess amount of tax revenue to cover defaulted or delayed payment seems unfair to the taxpayers. Since this program aims to a small group of people, it cannot be simply treated as a public good. Optimal level can’t be decided by voting since low income population has a higher demand than high-income population and with the long right tail of the income distribution, the median voter will vote for above optimal level. Theoretically, equating the marginal costs and the marginal benefits of the program might help achieving the optimal level. In practice, the process of application should be more selective to avoid waste of resources. A scrutinized examination of applicants should be conducted including family income, parents’ education level, working experience, etc. in order to screen out the those who are unlikely to finish school and will have trouble with payment in the near future. And students should be encouraged to exhaust any other financial aids before applying for a student loan and should only apply for the minimal amount needed. A credible co-signer or parents should be required if the borrowers’ age is below certain level. Also study shows that the most indebted student borrowers are likely to be those who attended graduate school or who earned undergraduate degrees at expensive, elite institutions. Small borrowers from community colleges and for-profit technical schools have the highest default