This week is the annual Best Colleges issue for US News and World Report. We love to read it, perhaps out of vanity. One of the ads reads:
BANKS LEND 17 TIMES MORE MONEY FOR CARS THAN STUDENTS.
The company, My Rich Uncle, makes student loans. Money, like soap, cars, roofing nails and fabric, is a product that is sold. Idealistic thoughts aside, its availability is determined by market forces. Simply put, most student loans are a bad bet. Car loans are a good bet. Student loans are unsecured loans with no collateral. Car loans, like mortgages and chattel loans, are secured and backed by collateral.
I am in a business where I need my clients/customers to have good credit (unlike bankruptcy attorneys, who need people to have credit problems). More than half the time when I have a borrower with a credit issue it involves student loans they defaulted on. More than 50% of the time. There are stretches when it seems like every credit issue for weeks is either credit cards or student loans they failed to pay back. Worse yet they seldom have a degree to show for the money they borrowed.
So, when private industry passes on the economics of the thing, you and I get fleeced with government sponsored programs with interest rates that are the inverse of the risk factors. We get caught holding the bag. Loans get approved, checks are mailed, students quit school quietly, and stereos fly off the shelves. There isn’t nearly enough accountability in the industry. Until there are more checks and balances of student loan programs, the money will continue to flow toward the surer bets and the government will manadate that we subsidize the difference.