These private moneylenders have been there to swoop up students that have reached their limit for government borrowing. With tuition increasing rapidly, it doesn't take much to max out I guess. As the private moneylenders look for more lucrative victims, federal loans have increased but not enough to bridge the gap.
The moneylenders that lend to students so they can get an education have had a sumptuous feast. They came under some scrutiny for the cozy relationship they have had with financial aid officers at schools supplying them with gifts and all sorts of incentives to push their loans. Until the financial collapse, moneylending to our youth so they can get an education has been a very lucrative business.
Millions of dollars in fees have also been made by middlemen who manage federal loans. Federal loans tend to demand less interest and are less stringent than private money. Up until a couple years ago, the student loan market was an $80 billion dollar market, more often than not the moneylender's victims have been working class youth many from poor backgrounds. "Students and their families took out an estimated $11 billion in private student loans in the 2008-09 school year" according to the Wall Street Journal *, a $12 billion dollar decline from the previous year when student loans were the fastest growing section of the financial aid market.
But why is there a student loan market? Why a financial aid market? It's amazing how they use these terms to describe perhaps the most hated parasites in history-----moneylenders. Of course, moneylenders would insist that they provide valuable social services. They even provide classes they call "financial literacy programs" to make sure their victims can budget sensibly enough to fork over the interest. Like a dope dealer, they justify their existence, claim that society is better off through their actions. Say's one of them:
"If there was more competition, the student would be getting a better deal because more people would be competing for the student's business, if you're underprivileged and getting a loan is your only option to be able to afford college, then in this scenario, you have to accept the government's terms and interest rates."
Competition, the policy that drives all workers to the bottom of the heap is their answer to it all. "Schools and borrowers will not enjoy the many critical benefits without private-sector involvement." Says Michael Reardon, a student lending executive at Citibank.
Aren't we lucky that these guys are as dedicated to our well being as they are. Heck, they care more about us than we do.
While a federal loan might be less of a stranglehold than the private userer, the amounts of cash involved, not just the loan itself but the interest, the millions they get in addition, shows that education could easily be fully funded at the federal level. The money they lend to our children is wealth that their parents created anyway, they are just handing it back to us so for education (or other purposes) but for a price.
* WSJ 10-21-09
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