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Comment by luser001 | Hacker News Reader

In what ways is a college loan a subsidy? ("by subsidizing investment in college education" ...) Who's doing the subsidizing?

Am I missing something?

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They are providing low interest loans for people who wouldn't otherwise qualify. The extra risk that the government takes on (that private banks otherwise wouldn't) is the subsidy.

Basically they are making money available that wouldn't be there without government intervention.

Not to mention that they are directly subsidizing the interest in many cases.

Who is the "they" here? Unless the govt. is doing it, it doesn't count as subsidy.

Also, I thought govt. loans were much smaller in total than private loans. Is that incorrect?

The government made student loan debt not dischargable through bankruptcy; that's basically a loan guarantee, hence a subsidy.

Except the government doesn't guarantee that they'll pay it off; they're just forcing it onto the student.

To put it differently, if the government announced that failed startups could not discharge their debt through bankruptcy and that the founders would be held responsible for paying off the debts, would you call this government subsidization of small business?

Yes, it would encourage banks to start lending because they have you for the rest of your life to force you to pay. Those kids get loans they couldn't otherwise get because banks know they have them by the balls.

But I wouldn't use the word 'subsidy' to describe that situation.

Maybe you wouldn't, but many people would. The government is encouraging behavior with law and giving the banks something that drastically lowers the risk of lending; that something is guaranteed access to a persons future earnings. I call that a subsidy, even if it's not a direct cash payment.

Yes, they do. Just as Fannie Mae and Freddie Mac guaranteed "qualifying" loans the government guarantees some portion of student loans, e.g. Stafford loans, through Sallie Mae.

Ok, I got downvotes instead of clarifications to my question about the market share of the govt. in student loans. :(

It appears that the direct and indirect (i.e., backed by the govt.) loans by the federal govt. account for 80% of the market.

So yes, the relaxed standards for govt. backed loans is keeping college costs high. And the word 'subsidy' can be reasonably applied to the current situation.

http://online.wsj.com/article/SB1000142405297020344010457440...

Yes, the government massively subsidizes student loans, both directly, and through guaranties. See http://www.direct.ed.gov/

The most obvious answer would be to talk about Federal Subsidized Student Loans (like the Stafford). Additionally though, while not a subsidy, per se, there's also the fact that when you take out a student loan, you typically don't make any payments until six months after you stop being a full time student. This feels a lot like a subsidy.

The interest on college loans in the US is largely subsidized through the government while students are in college.

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