Blogs:

Mitt Romney has promised students that he will strive to enhance efficiency and reduce rate of loan default by bringing back private lenders to the student loan market. According to higher education analysts and experts, this could be a blunder and could cost billions of dollars for tax payers over a decade. The move would not save any significant amount of money for students too.

According to critics loan companies and banks will be the prime beneficiaries. They will make a lot of money through government backed, risk-free loans offered with subsidies. These are the firms that have been benefiting for decades until President Obama made it mandatory that all federal student loans will be issued by the government.

According to experts the old program was in existence for longer than necessary for the sole reason that it benefited private companies. He says that calling back private lenders into the picture is a completely misguided move that will not benefit taxpayers or students in any way.

Private lenders argue in their interest that many lending companies had to send out employees as there was no more work for them. Many divisions that dealt with student loans were shut down. Mitt Romney points out to the fact that students continue to borrow more than they should and bringing in private competition will spur innovation and prevent this.

Government backed loans dominate today’s student loan market. These loans made through the federal direct loan program of the Department of Education help parents and students pay the extremely high tuition fee. With no such backing, a number of loan options are offered by the private market at very high rate of interest.

Student lending industry is a highly lucrative segment and Romney has a long association and financial ties to this industry. More than $30,000 has been contributed by this sector for his election campaign. Compared to him, student loan companies have only contributed $5250 to Obama. A Democratic super PAC and American Bridge’s senior advisor Ty Matsdorf says that through his education policy, Romney is bringing back middlemen into the industry where he had many a dollar at stake.

A 35 page white paper outlines Romney’s education reform plans. There is however no details on his proposal. There is no explanation on how and why he would allow private lenders back into the picture. There is only a clear criticism on Obama’s move of eliminating these lenders. There is of course a denial on Romney backing private lenders with vested interests on enriching private companies.

Romney’s higher education policy adviser Bill Hansen clarified that the Republican nominee has no intentions of bringing back the old system which was about paying back in subsidies millions of dollars by the government to cover at low rates their student loan exposure.

Hansen said that government subsidy will not necessarily be offered for the new private programs. He also said that parameters were not yet discussed by the campaign and nothing is yet clear about how much will Romney’s plan cost or save.