Alfred Lord, the CEO of Sallie Mae*, is saying that Sallie is looking at a potential "train wreck" in student loans, because no one is buying their repackaged debt, and because federal law has reduced the subsides
This is a good thing. The student loan business is a racket. It costs both the student and the taxpayer more than direct loans from the government.
These loans have special protections, they are not dischargeable by bankruptcy, and the juxtaposition of subsidies and government guaranties to the lenders make it a truly parasitic part of the financial system.
I should note that, God help me, I actually agree with David Frum's position that the student loan/grant process is, and creates unconscionable costs to higher ed, because there is a federally maintained never-never land loan plan, which cushions the effects of inflation.
Where he and I differ is that he suggests, or at least strongly implies support for, ending the program with no replacement†, while I think that the government has sufficient power as lender for student loans to enforce some realistic price controls.‡
*Sallie is not a Government Sponsored Entity (GSE) like Fannie and Freddie. It was, but it found the student loan market so lucrative that it successfully lobbied Congress to privatize in 2004, which is why the name sounds like s GSE's name.
†Something he would love as a former fellow atthe racist Manhattan institute. It would mean that his children would have a student body much more comfortable to him.
‡Oh yeah, while you are at it, do something about the inflation in college text books too.
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