For the past 15-years the student loan market has grown significantly as more US citizens are going to college and using federal borrowed money to do so. The dramatic rise in student loan debt is very much correlated to the higher tuition fees charged by both public and private institutions. Many analysts who have been following the rise in loan debt have seen that much of it is due to the increase in costs of tuition.
Many student loan companies are creating the problem, as all of the cost is being handed down to the borrower. Tremendously lax lending practices by loan corporations at high rates have essentially upped student tuition, which in turn has increased student debt. The cycle of continuous lending despite the likelihood that many of the loans have a high probability of not being paid back has been trending this way for almost 30-years, and is eventually expected to come to a head.
Here is the real issue and the main cause of the problem. The federal government has the come to the conclusion that everyone is entitled to go to college, and is more than willing to provide money so that kids who want to go can. Admirable, but not realistic as many personal loans for people with bad credit cannot be paid back. Moreover, the country now has a shortage of folks in the trade business, as many of the people who would have went into a trade instead applied for a government loan to go to school.
Education is golden and individuals should always be trying to improve their overall knowledge, but the idea that everyone is entitled to go to college is irrational. Federal loans are given out with tremendous ease (just like the housing market did for years), without any due diligence as to whether or not the student will be able to find work when they graduate, what field they will be working in, and if they can actually pay back both the interest and the principal of the loan.
Many in the financial world emphatically believe that it is the student loan institutions that are causing much of the bubble. Some have suggested that there needs to be a change in regulation and bankruptcy rules. Higher learning institutions must also feel the fallout from a default on student loans. Such lax regulation has allowed potential borrowers to easily receive funds for a student loan, which in turn has prompted many colleges to simply charge more for tuition, as they know that students can afford it with government assistance. Effectively, higher learning institutions are taking advantage of the lax lending practices of the federal government, squeezing as many dollars as they can out of an extremely generous program.
Student loans are by far the riskiest type of loan since there is no collateral pledged. Greater standards need to be implemented with stricter guidelines for approving student loans. One way to look at it is that all education is not equal, in the sense that a computer science major from MIT has a better chance of landing a job and repaying a loan compared to an art major from a community college.
The government needs to do more due diligence and try to figure out the loan applicants likelihood of graduation, ability to get a job and possible income. Students looking to borrower should be investigated to get an ideal of their creditworthiness, much like a bank does for every other loan. Student loan requirements need to be more stringent, as the days of easy money need to come to an official end.