VA Loan Updates

I would advise State News readers to scrutinize the recent column “Congress should not alter student loans” (SN 1/16), by Brian Riedl concerning the possible reduction of interest rates on student loans. The key sentence is: “Perhaps it’s not in society’s best interest to tax society at large to further subsidize the 24 percent with college degrees and higher lifetime earnings.”Of course, Mr. Riedl is being a bit disingenuous here. Look at that sentence again. See any hot-button issues there? Tax! Subsidize! First, the American public is not being “taxed” to provide any “subsidy” to any students — the subsidy goes to private lenders, not students. As far as students are concerned, these are loans — you have to pay it all back with interest! And it is this interest rate that is being adjusted. It will have minimal effect on overall government spending.

The student loan program costs the U.S. taxpayers very little. In fact, studies have shown that investing in the GI Bill for education benefits after World War II was wildly profitable for the federal government, resulting in about $2 of added tax revenue for every $1 spent. This does not include the tremendous boost to the economy as a whole, estimated to be over $5 for every dollar spent on that very successful subsidy program. So, in total, that adds up to a 700 percent return on investment.

Although this data is from 1999, I suspect these numbers haven’t changed all that much: Federally-subsidized student loans cost the federal government $13.32 per $100 loaned, versus $.39 for each $100 of direct loan. So, to return to Mr. Riedl’s argument: If the government wants to save some money, it would be very cost effective if they would simply convert every subsidized loan into a direct loan. Remember, the subsidy goes to the bank, not to you.

Phil Bellfy
writing rhetoric and American culture associate professor

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