Takin' the rubes for a ride - student loans

Federally subsidized college loans are one the 'wonders' of our nation - we help students finance their education so that they call pull themselves up by their bootstraps. Right?

Wrong.

Student loans are debt given to young, inexperienced teens who are betting that they will be able to complete college and that the skills that they obtain therein will enable them to pay back the loans and still have something left over that exceeds what they would have earned without going to college. What could possibly be wrong with that?

A lot, really.

First, student loans are given to anyone who has gained admission to an accredited institution. And since the college isn't making the loan, but gets the proceeds, it has a strong incentive to admit the student and encourage their indebtedness even if the student's prospects of graduating and earning back the debt are slim to none.

Second, being compassion filled charities, colleges don't have to share consumer information with their prospective customers. Information like: "Students with your credentials graduated 21% of the time, those who did not graduated were left with on average $45,000 in debt. On average those who did graduate made $3,000 more than they would have if they hadn't which only covers 1/3 of the payments for their debt".

Third, the easy availability of subsidized loans that defer all payments until graduation have allowed colleges to increase their prices by a whopping 400% in real terms over the last 40 years. For essentially the same service.

Fourth, federally subsidized student loans are not like that other, abominated form of debt offered to college students: credit cards. Credit card debt can be eliminated through bankruptcy. Federal student loans cannot.

Finally, the easy availability of student loans from the feds, means that colleges don't have to worry about the creditworthiness of their borrowers. If the Feds had loaned the money to the colleges and held them accountable for paying back the proceeds, then the colleges would be forced to be honest with students. In many cases the colleges would decline to loan students money because they would know that their prospects of success were minimal.

Indeed one wonders why colleges need federal student loan money at all. After all, if the college is good at picking students who will benefit and giving them marketable skills, then it should be able to go to the financial markets and borrow the money to fund their education. It's a great investment. If on the other hand, they do a lousy job of educating the students that they admit, no one will lend them money and they'll go out of business.

But instead, these "charities" have structured the market so that they get to maximize their revenues and leave the poor inexperienced rubes who trusted them with debts that NEVER GO AWAY.

You see colleges and universities are stalwarts of the "Party of the State" coalition. And it's more important for the Party of the State to reward them than to protect young, vulnerable teens with limited academic skills and prospects.

Oh, and if our private credit card companies did this sort of thing: their execs would all be in prison.

Hope! Change! And really huge debts.