Eliminating Waste in Student Loans: Jobs at Risk

The NYT reports that opponents of a measure that would save money by putting private lenders out of the government guaranteed student loan business warn that it could cost jobs. This is of course true.

Suppose there is an efficient computer company that sells computers for $500 each and an inefficient computer company that sell comparable computers for $1,000 each. It is likely that the inefficient computer company employs more workers for each computer produced than the efficient manufacturer. Therefore switching orders from the less efficient company to the more efficient company would cost jobs.

This is effectively what is happening with the student loan program, except the more efficient provider happens to be the government. There is no more argument to obstruct this switch because of possible job loss than there would be to try to prevent people from buying goods from more efficient producers. This is economic growth. The people who lose their jobs should be reemployed where they could be more productive.

--Dean Baker

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