In a democracy, through their vote, the people decide what issues should be set before them, what side of an issue will prevail, and what their, and their children’s future will hold. Citizens are expected to be conversant on the issues of the day, expected to use their minds and knowledge to seek and discover the concerns that will shape the destiny and form of their nation. Successful democracies depend on the wisdom of their people, and wisdom comes through discipline, training, experience, and education. Through education comes the higher skilled workers that no robust economy can do without. A strong and healthy economy is the backbone of a strong and healthy nation. No democracy can afford to ignore the importance of education if that democracy is to survive, to thrive and flourish, if it is to be a democracy capable of justice. It is the responsibility of a democracy to assure its citizens the right to an education. It must make it widely available and affordable. Education loans are one important vehicle.
Having long recognized the necessity of an educated populace, and recognizing as well that education comes with a price tag, the people of the United States have heartily embraced the practice of education loans. Education takes up time that might otherwise be used for work and profit. A citizen must live while yet attending a school or a college, and the education facilities and its teachers and staff must all be paid. Unless the citizen is wealthy, most citizens are unable to refrain from work in order to obtain an education. A part-time job will only cover so much. To cover the rest, the people of the U.S., through their government, make the first twelve years of a citizen’s education free, and for higher education, student loans are available.
Education loans in the United States have been supported by the federal government since 1965. Our government subsidizes banks and institutions such as Sallie Mae, enabling these institutions to provide student loans to citizens in need. The government encourages lending institutions to make student loans by reducing risks to the lender. The Federal Family Education Loan (FFEL) project, the government program responsible for backing student loans, will pay out 97 percent of a student loan that goes into default.
With this incentive in place, lending institutions have little trouble giving out education loans. There is money to be earned from the interest charged, and the risk is low. Granted, there isn’t the opportunity for lenders to make the highest possible profit from their capital: since 1993 the federal government has been making student loans directly to the student, putting a competitive cap on interest rates the private sector lenders may charge. FFEL has worked very well for students and lenders alike, but, under the FFEL program, the people have been expensed at about $6 billion a year. This is money that could be applied to student grants for low income students, to the Pell grant. To reduce these expenses and make the saved money available for grants, and for junior colleges, the federal government is now retiring FFEL and making education loans directly to its citizens under the Direct Loan Program.
While this may be bad news for the education loans industry, it’s good news indeed for low income students. The Pell Grant is slated to receive an additional $13.5 billion of funding. With so many people unemployed and displaced, wanting to return to school today, this change is just in time. It brings hope to thousands of people thirsting for knowledge and a better job. It is also reason to hope that the United States will win in its struggle to retain its character as democracy’s shining star. Its commitment to education – and education loans – may very well be the means of its redemption.