Direct-Lending Program for Student Loans Proposed; Sallie Mae Shares Drop First he zombied the banks, in effect potentially diluting the shareholders as the government preferreds can be converted into common. Of course when things turn around and that common can be sold at higher prices, I wonder what slush fund or whose bank account that profit will find its way to. Now he's in effect wiping out Sallie Mae and all the other lenders. Is this how they do things in Kenya? The US let banks go bankrupt and had the RTC slice things up back in the late 80's and early 90's. Didn't Obama see how well this worked out as compared to the Japan's Zombie Program? And wiping out a private sector to let the govt run and profit from sounds like something Mugabe in Zimbabwe would do. It looks like the US elected Mugabe Jr or Junior Mugabe, however you like the sound of it.
Is this because Sallie isn't lending to students well enough? I confess I did not read the article yet, but if students cant get loans for college, then the govt' has to take steps to lend to them.
I want to know who out there is having problems getting a student loan. If its subprime borrowers, then yes, they should have some difficulty or have to pay at a higher rate. Given the default rates, the cost of capital, a borrowers financial status, etc.. one would think the private sector adequately issues a fair number of student loans out there. There's no such thing as free money in this world no matter what the cause. By having the government issue the full amount of the loan, now your potentially setting up an environment by which any and all losses are going to be subsidized with taxpayer money. This is crazy.
I think you're missing the point... Last time I heard SLM and others like it couldn't lend to students, but not because of creditworthiness concerns, but simply because they couldn't securitize the loans, so they can't fund themselves. Provided this is still the case (which it is, I believe), the problem is that the mayhem in capital mkts is hurting education, i.e. the long-term competitiveness of the US. If the government wants to help, they're doing absolutely the right thing. In fact, this direct lending for education is probably the most socially viable of all the govt's funding initiatives. Sure is better than funding GM and Chrysler, IMHO.