<p>I think many things can be blamed for students being in situations where they are no longer able to pay their debt. However, I think the ultimate cause of the problem is that the youth simply don't understand how debt works. They don't understand that when you try to buy a house when you graduate, having $100,000 in college debt severely impacts how much you can buy, if you can buy at all. They don't understand that consequences of going into such a large amount of debt. Most students think "oh, I have four years until I need to start paying... it's not a big deal," when in fact it's a major decision with far-reaching consequences. Students borrow money they don't really need, thinking that another $3,000 added to a $50,000 tab isn't a big deal.</p>
<p>Sure, predatory lending, outrageous school prices, and all of these other facts exacerbate the situation. But when it comes down to it, students going into college simply don't understand how debt works, and when it comes time to sign the dotted line, they either don't understand what they're doing or don't care. It's not the responsibility of the banks to inform students on how a loan works. Of course they shouldn't lie or otherwise be malicious, and students should not be given an endless credit line under the guise of a student loan. And if a borrower has questions, the banks should provide answers. But it's not the job of banks to tell to provide an educational seminar on what it is you're doing when you take out a loan. That responsibility falls on the student, in my opinion.</p>
<p>I have no pity for students that are in six-figure debt.</p>
<p>The problem perhaps is not that students do not know how debt works, although some clearly do not, many know so well they are becoming terrified by the whole system. The more operative problem is that students clearly do not know how debt works in the student loan situation, which is very different from more closely regulated lending industries.
For example one common practice has been for loan companies to attach college logos onto their marketing. This implies to many that these private companies are sanctioned by, or part of a given college. Granted certain colleges allowed this for certain considerations provided by the loan companies. In any other financial arena this would be stopped under consumer laws regarding misrepresentation.
Additionally as compared to mortgages and other forms of debt, the consumer protections and options have largely been stripped from student loans. And many students do not know this, and certainly many of the colleges or the loan companies are in no hurry to disclose these differences. The ability to refinance for more favorable terms has largely been stripped away, as have the abilities to file for consumer protections such as bankruptcy. And even extremes such as seizure of social security payments, and denial of drivers licenses has been proposed and sometimes granted to the SL industry via state and federal collusion. And such the 220% increase in fee revenues mentioned in previous postings is unprecedented.
So the problem here is that SL's have become such a unique form of debt that any of the caveats and protections that a reasonable and literate person would understand from their experience with more reputable and properly regulated forms of debt are not applicable.
Yes it might be that students do not understand what they are getting into, but the correlating issue is that the manner in which the SL industry has obtained unique privileges precludes that very comprehension.
To even find out about the unique problems attendant to signing a student loan requires reading of sources not often available to students, or even generally available to the public or even within academia. So students may be ignorant, but until recently so have been many about the problems of the SL industry, and many still are. Simply because the dialog on this issue has largely been kept in the closed doors and smoke filled rooms. This may change because in 2009 one of the consumer rights organizations dealing with the issue is apparently going to publish a major and potential very influential expose.
Sympathy for those caught in this situation is a personal choice. But from a pragmatic view what we have is a broken system, which cannot be sustained too much longer...and if it is allowed to continue without reforms it could be a socio-economic disaster which will be much worse than the mortgage collapse.</p>