Wednesday, March 12, 2014

Student loans: more than meets the eye

Things we know: there is more than $1tr in student loan debt; a higher percentage of student loans are 90 days past due than credit card, auto or mortgage debt.  The popular press would have us believe that this is the result of rising tuition.

Reality is much more complicated, as a recent WSJ piece indicates.  Student loans are designed to cover tuition and living expenses.  The terms are relatively attractive and there is little to no screening for credit worthiness.  So student debt can be used to cover everyday expenses when there are no other funding sources available.  WSJ profiled one young man who was unemployed and signed up for part-time community college courses so he could borrow enough money to pay his rent.  A sad case, to be sure, but probably not what the designers of the student loan program had in mind.

If you take out an auto loan or mortgage, you get asked a series of questions designed to gauge the likelihood that you will pay the loan back.  The questions that should be asked about student loans -- which would reflect the odds of completing a program and the success of its graduates -- would shake the world of higher education to its very core.

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