Jacques Steinberg reporting on hearings on student loan reform in the NY Times Education blog:

In his opening statement, Dr. Vedder, the director of the Center for College Affordability and Productivity, expressed his disagreement with the proposal, including the president’s plan to increase the popular Pell Grant program and other aid by nearly $100 billion over 10 years. Dr. Vedder argued that by making more money available to students to attend college, the government may be giving colleges further incentive to raise costs.

Under questioning by Representative Howard P. McKeon of California, the ranking Republican on the committee, Dr. Vedder said, “The cost of college has been rising three times the rate of inflation, two to three times the rate of inflation, for 30 to 40 years.” He added, “Tuitions have gone up because they can.”

We should note here that a great part of the planned $100 billion increase in Pell Grants would come from the elimination of subsidies paid to private student loan providers.

To put it simply, we give banks government money and guarantees so that they will make student loans. They take billions in profits and pass on the rest to students. You have to pay your student loans and if you do not the government will pay the banks anyway. This is a risk free business.

Which always left Wonks Anonymous wondering just what valuable social service the "market" was rewarding when it distributed so many billions in income to these clowns. It disturbed him. He began to wonder if this were no the best of all possible worlds but now he knows. Professor Vedder, the brilliant economist, has spoken.

If the banks had not sucked off their billions in profit that money would have been spent on education which would drive up the cost of college and maybe even result in pay increase for migrant educational workers throughout the country.

Which also means that the profits of health insurers are helping to keep down the cost of health care.

Now it is all clear.