The Basics Of The Student Loan Mess
These past weeks there has been talk in the higher education press about private lenders and state guarantee agencies either withdrawing from the government-subsidized student loan market or refusing to underwrite new loans. These financial institutions cite either a cash crunch or a credit crunch, or reductions in the federal interest subsidy as the reasons for pulling back on such loans.
These are all legitimate reasons for the private financial markets to back out. Student loans were never meant to be a profit center when they were first proposed by the federal government under President Eisenhower. The purposes of student loans are to make college affordable and accessible to anyone who is admitted to college and to help them establish good credit early in the working lives.
When I applied for my first student loan 30 years ago, I could borrow up to $2,500 and I didn\’t need to pay an origination fee. Today, the maximum a college freshman can borrow under the subsidized loan program is $3,500; considering inflation it\’s a lot less than I could have borrow 30 years ago and covers a much smaller share of the costs! The $2,500 I could borrow in 1978 would have covered more than half the cost of my freshman year at Rutgers. The $3,500 I could borrow today would cover less than a fifth of the freight
