BusinessWeek reports on a major change in the student-loan market:
In recent months, peer-to-peer lending sites such as Prosper and Virgin Money USA have introduced student loans or started marketing existing offerings to families looking for college funds. Others, including startups GreenNote and Fynanz, are focused exclusively on making college loans. Analysts say the sites are benefiting from the confluence of trends—a growing acceptance of peer-to-peer lending and fallout from the credit crunch, which has caused lenders who account for more than 20% of the market for private student loans to stop lending.
The general idea is to facilitate loans between students, on the one hand, and either Good Samaritan friends and relatives, or strangers intent on investing in alternatives to stocks, bonds, and certificates of deposit…
As the competition among bidders intensifies for a piece of a loan, the interest rate a student will have to pay declines.
Focus on the last sentence. As I wrote in a prior essay, the Internet and free trade have essentially consolidated all local and national markets into a single, global one. The market is infinite. Increased competition raises quality and lowers prices, and now this is effecting student loans. Due to the skyrocketing cost of higher education, most students have no choice but to take out government and private loans if they want to attend college. Now they will benefit from increased competition.
If only the same logic could be applied to health care. Why, again, is it illegal for Americans to purchase their expensive medicines from Canada, where prices are cheaper? Oh, I forgot: The government bowed to pressure from the pharmaceutical industry. So much for free markets.
