First we were shown glittering promises of owning homes at really low to non-existent interest rates without being told that payments would skyrocket in a few short years; effectively forcing many starry-eyed homeowners to foreclose on their homes when the inevitable came.
But the problem wasn’t confined to just a few dozen households. Entire financial institutions crumbled when they realized that they had ripped off too many homeowners that couldn’t afford to make the payments; effectively sinking the real estate market and the American economy that was so deeply entrenched in the quick money it brought about.
This was the subprime mortgaging sham that brought down our economy, and it is being done all over again with student loans.
But what can we do about it?
First off is to put pressure on both federal and state governments to regulate – not guarantee – student loans. This is especially true for for-profit colleges, which love to pull in students in with teaser interest rates only to sucker-punch them in their second year with cuts to student aid and calls for student loans.
We need to make sure that these colleges use the money given to them via student loans to produce quality graduates and not just to saddle them with debt without giving them the sufficient means to pay off those debts.
The second thing we can do is to increase transparency in college fees. We have to move beyond the drivel that these institutions feed us and focus on the cold, hard numbers.
The federal government is doing that right now, with plans to publish a “scorecard” for each college detailing the available student aid, their graduation rates and how well their past graduates fare in the job market.
And last but not the least is to implement a system wherein student loans can be discharged with bankruptcy. The reason why colleges and lenders can get away with stacking up so much student loans is because these loans “can’t be easily discharged by bankruptcy”.
No one cares if a graduate gets a decent job or not – the law states that the student loan debtor must pay off that debt while providing only minimal protection for the students. This is an especially prevalent problem with private student loans which don’t have the same protective features as federal loans.