| When government is directed to provide a good or service, it usually does so by establishing a single program to accomplish its goal. The provision of loans to students at U.S. postsecondary institutions is a notable exception, however. Since 1994, the U.S. Department of Education has administered both the Federal Family Education Loan program and the William D. Ford Federal Direct Student Loan Program. Though the former provides loans by outsourcing to private lenders for financial capital, and the latter funds the necessary capital in-house by borrowing from the U.S. Treasury, both programs provide loan products to an identical population of students at the same price and with the same terms of repayment. Strictly as an accident of politics, the Federal government has eliminated monopoly aspects from the provision of student loans. This thesis asserts that, as a result of competition between the two programs, students and the institutions they attend are better served while the government saves roughly {dollar}685 million per year. Chapter One reviews academic inquiries into privatization generally, and the injection of competition to the provision of goods and services by government specifically. Chapter two is divided into three main sections. The first reviews the political history of the student loan programs. The second uses budget data from 1966 to 2001 to estimate the cost savings associated with the introduction of competition via time-series regression with moving average error correction. The third traces improvements in the quality of the loan product since competition with nonparametric tests, as seen through the eyes of students and the financial aid directors at over 2,300 U.S. postsecondary institutions. Chapter Three addresses why inter-program competition has been a success in the instance of student loans, the degree to which such a model can be generalized to the provision of services in other scenarios, and the political ecology necessary to the sustenance of a competitive environment. |
