NCPA - National Center for Policy Analysis

Direct Student Loan Program Unnecessary And A Failure

June 1, 1999

The Education Department's inspector general recently issued a report on the federal direct student loan program. It appears to be one government program taxpayers could live without.

  • Although private-sector student loans cost $13 each to administer, the government variety costs $17.
  • Since the government pays out more to run the program than it gets back in loan payments, the program costs taxpayers $100 million a year.
  • Private-sector student loans grew by more than $805 million between 1997 and 1998 -- while direct government lending fell from roughly $27 million to less than $11 million last year.
  • Schools report a satisfaction rate of only 71 percent for the government's program, versus 84 percent for private loans.

Fewer than 10 percent of schools use direct loans exclusively, compared to 77 percent which rely solely on the private sector.

Nevertheless, the Education Department has requested a 17 percent increase in funding for the program.

Source: Editorial, "Another Education Boondoggle," Investor's Business Daily, June 1, 1999.

 

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