The Student Loan Sunshine Act is the latest response by the House of Representatives over the recent student loan controversy brought to light through a recent nationwide investigation by New York Attorney General Andrew M. Cuomo. The act requires lenders to disclose all financial kickbacks and deals made with educational institutions and prohibits certain types of gifts and incentives deemed "questionable".
While some analysts claim that the bill will have minimal effectiveness because it fails to address the government subsidies that make student loans popular with lenders, there is little that can be done to curb subsidization without risking the availability of student funding.
Student loans are a risky proposition, and one that fails to generate revenue for lenders up to year post graduation. Critics of the current system claim that the absence of subsidies will force lenders to become more competitive and educational institutions to eliminate preferred lender status. Unfortunately, without subsidization, there is little if any incentive for lenders to offer student loans.
Almost any loan, be it business or personal, garners far better interest rates, produces interest income immediately and aside from mortgages, yields full repayment within a shorter timeframe than a student loan. Additionally, those applying for loans often have the financial security in the form of a steady income as well as collateral to back the loan. Many students, especially those just starting college, not only are not employed or employed at a job that only affords living expenses, but have no intention of pursuing employment for the duration of the pursuit of their degree.
The benefits of an educated society are many, yet most students wouldn't be able to attend college without the ability to finance it through student loans. While a large percentage of students rely on federal Stafford loans, many are ineligible for federal lending, especially graduate students.
Privatization is only effective when there is market demand on both sides of the equation. Less involvement by the government may sound positive, but in this case, it's a matter of demand versus subsidized supply, not actual supply. Without subsidization, many lenders would avoid offering student loans altogether. Those who would continue would be forced to charge interest rates that are commensurate with the necessary terms of the loan.
