9.15.2012 2 Comments
Student loans are an economic transaction, the same as if the government had contracted out to build a bridge or hired a person to serve in the military or police force or be a teacher. The money spent here isn’t “aid.” Hiring someone to build a bridge exchanges labor for cash. Student loans exchange cash now for cash later plus interest. Those student loans would be underprovided without the government, certainly, but in the same way that bridges and law enforcement and other goods would also be underprovided if they weren’t done by government.
Repayment plus interest entails the presence of a potential for-profit transaction between the loan-giver and loan-taker. Financial aid, such as a grant or waiver, is also an economic transaction, pace Konczal. But aid is a gift, not a money bet made by two contracting parties, one of whom wants to take profit from the exchange and another who wants to construct a better rewarded working life. Does the Federal Government earn a profit on these loans? Yes! The Federal Government earned money on Direct Student Loans, as Konczal points out (see also this, .pdf).
Aid — namely, help or a gift — does not need to be repaid. A loan, however, does.