Student Loans – The Business

A common statistic quoted by many colleges is that Americans with a college degree will earn $1 million more in their lifetime compared to persons with high school diplomas. The notion that a college education is the ticket to receiving higher wages is a fallacy. For decades, this miscommunication has been used to mislead college-aged kids all over the country. Every year, the number of high school graduates and Americans that enroll in college grows. According to the US Census Bureau for the 2010-2011 school year it was projected that the number of students enrolled in college is 19.7 million, an increase from 14.4 million 20 years ago.

Growing alongside the rise in the enrollment rate of college students has also an increase in college tuition, which is causing the majority of students to turn to private and federal loans in order to pay for college. In an attempt to make college education accessible to everyone, the government provides low interest loans to college students. In the past, paying for a higher education was solely dependent on private funding; however, to support the increase in enrollment in the late 1950s the federal government took over and created cheap student loans for lower income students.  However, the application process is often less rigorous than the commercial lending process. So students, regardless of credit history or certainty of repayment, often graduate with thousands of dollars in debt.

Similar to Fannie Mae and Freddie Mac, in which the government made housing affordable, the government’s new business venture is giving easier access to college loans. However, this is having an adverse effect and is becoming the new financial crisis. Like the collapse of the real estate market, which led to a financial meltdown of US financial institutions, the current student loan bubble is going to have similar effect on the US economy. According to FinAid.org currently, the student loan debt is $997,137,000,000, (and will continue to surge above $1 trillion). This is even higher than the national credit card debt figure.

Every year millions of dollars are being paid in student loan interest. Currently, the Obama Administration is fighting to lower the interest rate on student loans, but instead should focus on stopping college tuition from increasing beyond the price of inflation. It becomes apparent that lowering the interest rate on student loans will result in students borrowing more money than is needed, which will inevitably increase the debt figure bringing the nation one step close to another financial meltdown.

Today, the student loan bubble is one of the largest looming financial crises in US history, and is caused by the willingness of the government to provide cheap and easy student loans. It is the notion for many students to think that a student loan is an investment in the future, and that college is a better place to invest in, but what many fail to realize is that the value of a college degree is declining faster than the skyrocketing cost of college tuition. This notion is causing millions of Americans to graduate college with mortgage-size loans while living with their parents.

Furthermore, adding to the propaganda, colleges are advertising the guarantee of job placement upon graduation. A prime example is law schools, in which thousands of students graduate with an average debt of $100,000 or more. However, upon graduating with such debt there are no jobs available for these law students as a law degree is slowly losing its value.

A college education is not worthless, but if Americans are going to overpay for education, then that education needs to be of some value upon graduating. Investing in a college education can be a smart investment; however, with the government’s willingness to provide cheap and easy loans to students, such an investment becomes wasted because the business of student loans is resulting in millions of students becoming indenture servants to the federal government for majority of their lives.

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3 thoughts on “Student Loans – The Business

  1. That is well put. The Government now markets Student loans as a business more than a necessity to educate the masses. But like you said many graduate into a system that does not reward majority of students with a rewarding career. However, if you a member of the elite ie, relation to a political elite or business executive you have a clear path to financial reward. Examples: Chelsea Clinton and Jana Bush.

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