Ultimately, a college education needs to be both accessible and valuable. With the current federal student loan program expanding to provide loans to more students, college education is more accessible but concurrently more expensive and less valuable.
In the United States economy, there are only so many jobs with high enough salaries for students to be able to adequately pay off bloated student loans. As more people earn college degrees, the pool of potential workers to fill these jobs expands while the number of these jobs remains somewhat fixed.
Along with this phenomenon, college tuition costs have skyrocketed dramatically in recent years. Adjusted for inflation, current college tuition rates at public four-year universities like Geneseo are nearly four times higher than they were in 1981. Rates at private four-year and public two-year universities are nearly three times higher than they were in 1981.
One of the major contributors to this trend is the availability of federal student loans to virtually all students. The ability to take out loans to cover rapidly increasing tuition costs has allowed for colleges to make these increases without suffering decreasing enrollment numbers. Demand has been artificially inflated despite these increasing tuition prices partially due to these federal loan programs.
Prospective college students are not educated enough on how much money they are taking out in loans and how difficult it can be to pay that money back. Parents, high school counselors, college administrators and the American society at large endorse and accept taking out huge student loans.
Regardless of whether or not students are able to pay off their loans when they leave college, universities are guaranteed to make their money because loans are dispersed straight to the colleges. With the federal student loan program, the risk shifts from colleges and banks to the taxpayers.
Without a federal student loan program, prospective college students would need to apply for loans from private banks. This would need to be a tightly regulated system to ensure that private lenders would not employ predatory lending strategies. To receive loans in this scenario, students would need to demonstrate that they will have adequate earning potential, using factors like high school GPA, SAT scores, what college they are attending, what major program they have been accepted into, and so on.
Once in college, students would have to continue demonstrating adequate future earning potential to continue to receive loans at the same interest rates. This would provide incentive for students to stay on track to graduate on time, to stay off academic probation and generally to excel in their studies.
“Riskier” students would theoretically need to take out loans with higher interest rates. Because fewer students would be able to get loans, there would be less demand for college education. Basic economic theory dictates that a decrease in demand results in a decrease in prices.
At the current rate we are going, the federal student loan bubble will be the next bubble to burst and threaten the financial stability of the United States. Student loan debt exceeds credit card debt in the U.S. at present.
Huge student loan obligations ruin lives; there have been far too many stories in the media lately about young adults with more than $200,000 in student loan debt while earning $30,000 per year. The path we are currently on is unsustainable and something needs to be changed.