Unlike government student loans, student loans issued by private lenders have been made to receive quick profits for the lenders. During the solid economic times we were used to, private student loans were sold in mass to investors. As a result, asset-backed securities backed by student loans grew from $3.1 billion in 1995 to $77.5 in 2005. Loan products were developed for this repackaging rather than helping hardworking college students who needed the help.
Student loans, especially private student loans, are almost always more expensive than federal government loans. Now this is definitely true for borrowers with lower credit scores or limited credit histories. An important detail to remember is that there are no loan limits that will help halt over-borrowing. Kind of like a bank with no over-draft protection. The annual amount of new private student loans killed the past decade as college tuition’s grew and the government set limits on its loans. Wall Street funded and profited from a dramatic surge in the marketing of expensive private loans to college students. In the middle of a recession that has put millions of Americans out of work, current and former students as well as their families need relief from mounting debt.
We need to fight to open the doors to higher education to low-income students by increasing the availability of grant aid and inexpensive loans funded or supported by the government.