Student Loans may Cease to Exist

Many lenders have stopped making student loans, just as students are about to apply for loans for next fall. This week alone, two of the largest lenders, Citicorp and Bank of America stopped making student loans. Universities are quickly going back to direct loans from the government, but the Department of Education may be swamped despite the fact that no student has been denied a loan yet.

So, if you find yourself wondering how this happened, it wasn’t over night. It began with the mortgage crisis and as a result investors were driven away from securitized assets, including student loans. This in turn increased the cost of financing student loans beyond the interest income and fees from those loans. Next, the law on student loans was changed last year, cutting the federal subsidy in half. Finally, a battle between Republicans and Democrats has been fought over who should make student loans. In 1993, when President Clinton came to office, he was able to establish direct lending from the taxpayers to students, but just about every student loan bill until last year’s cut back direct lending in favor of private lending.

The decisions we make now affect our future. For a lot of American families student loans take the financial burden of putting there child through college who otherwise couldn’t afford it. I think we should think about what something like this could potentially do on a much grander scale.