The Education Department's proposal this week to take over the Federal Student Loan Program from private banks is oddly incongruous from an administration committed to the idea of getting government out of activities more efficiently handled by the market. Since the program was established, banks have lent some $52 billion in federally guaranteed loans to more than 12 million college students.
The banking community, which over the years has come to depend on student loans as a regular line of business, opposes any change in current policy. But the government says it can do a better job more cheaply by administering the funds itself. It claims it could save about $1 billion a year in special allowances it pays to banks as an incentive to offer low-cost loans.
This notion has a nice ring, especially in a time of record deficits. But there's no reason to believe the government can really do a better job than the banks. For one thing, the government would have to set up an entirely new bureaucracy just to administer the loan program. Then there is the problem of tracking down defaulters, which private enterprise seems eminently more suited to do.
The larger problem is capitalization: Where would the government get the money to start the new loan fund? Chances are, it would borrow it from private lenders. The last thing this country needs is more borrowing. It needs, even less, government's expanding into the student loan business.