The Solution to the Student Loan Repayment Mess? Give them More Loans
So in February, President Obama announces a major new education budget, and it was crowdpleaser for both poor students, and the better-off. Government grants for college education for the poor, what they call Pell grants, receive a great bump up. And middle-class homes that are sending their children to college, get in a generous tax credit, something like $2500. What the president's budget did for student loans was remarkable, also in the way it completely ignored the clamor that's been building for how students need larger subsidized loan allowances. What? With all the talk out there of crushing student loan burdens, how students choose to run away rather than face a lifetime of indentured servitude to a student loan bank and young fresh graduates looking at 40-year student loan repayment timelines, these families need access to bigger student loans?
But do let's look at it this way: the college money that the government is willing to subsidize, has remained nearly frozen over more than 10 years. What you could expect to spend on a college education over four years back then, was about $12,000 each year. Today, that same college year will cost, about $25,000. If you attend public college today, it will set you back $7000 a month - up from about $3000 back then. But back then as now, all you can borrow is something in the region of $4000 a year. So what do students do? There is nothing much they can do - save for dropping out. And that's when the whole student loan repayment mess chokes all the life out of them - huge loans, and no degree to get a job with.
In America the whole student loan business has such a bad rap for lots of other reasons too. To begin with, for all the rapacity with which Sallie Mae and the others pursue all the student loan repayment, interest in all, it isn't even their own cash. It's always been the government that put up the cash; the companies just benefited from the interest. President Obama wonders why now, and is moving to cut out the middleman, and make loans directly. The government does handle about one over three of all student loans by itself anyway. And then of course, America hates the interest that the student loan firms charge that kind of look suspicious if you compare it to the Stafford loans. Sallie Mae for instance, puts out completely private loans to college students thatthey charge 5% more for; they just made nearly $3 billion in interest last year. If the government were to raise the subsidized amount that students could borrow, there would be no market for scalper loans like this. Do you see where this is getting?
The very reason that student loan repayments are such a problem, is that the government doesn't make enough low interest loans by itself; this opens the markets to cutthroat lenders like Sallie Mae who charge so much, that they send students into irredeemable debt. If the government raised its subsidized loan limits, it wouldn't make students borrow more - it would just make them borrow the same, from a more reasonable source, the government. Right now they are still borrowing that much anyway from people who want repayment in the form of a pound of flesh.