re: #99 JamesWI

What I really think Paul Ryan wants on student loans would be something like what Nicole Gelinas wants:

Who, then, will lend to students? Banks and investors. Let these lenders demand data from colleges, students, and credit-rating bureaus to assess which schools and programs boast the best graduation rates, the best alumni-donation rates, and the highest graduate incomes. Let these lenders, too, assess students’ own credit, job, and grade histories. The lenders can use this free-market information to decide which schools and students are the best bets. And let the borrowers have this information, too, so that they know the risk they’re taking. Finally, allow students the option of discharging their future student-loan debt through bankruptcy, something that they can’t do now. Such a change would make clear to lenders the real market risk they’re taking.

It’s likely, of course, that such moves would prompt howls of protest from all quarters. Student “advocates” would drag up the usual arguments about how federally subsidized loans help middle-class kids compete with rich kids. Not really: too much federally subsidized borrowing pushes up the cost of college for middle-class kids and encourages them to avoid tough decisions about their futures. Schools would hate the new approach, too. They don’t want a free-market assessment of their success rates. They do want students who can keep blindly borrowing to afford sky-high tuitions. Moreover, schools don’t want middle-class students questioning why they’ve got to pay for a state-of-the art gym and luxury dorm room when all they want is a decent education.

Of course, reforming the student-loan system along these lines would depend on a functional financial system—that is, on banks and big investors that devote most of their energy to the nuts and bolts of borrowing and lending, rather than to jumping through government hoops to assure bailouts in the next financial crisis. If banks and investors can’t do responsible student lending, that’s a sign that the financial system is still broken—a much worse portent for future college graduates than higher interest rates on loans.

Mitt Romney should have seized this opportunity to communicate directly to college students and their parents and explain why more government subsidy is the wrong approach to student-loan financing. If Romney wants to portray himself as the free-market alternative to President Obama, he missed a chance to do it.

The thing is that her approach would require consistent regulation that would not be soon shot through with lobbyist-generated loopholes. So it would not be a libertarian system. But banking can’t really be that, truth to tell.