Student Loan Fight Over: Winner Declared

Well, it's finally done. The end of the Federal Family Education Loan Program, a program that began in 1965. Things have certainly changed since '65 although the student loan players hadn't changed that much over the years until now. Schools had been preparing in anticipation of the July 1 switchover date because they knew or had a pretty good idea the change was a-coming. The financial crisis over the last few years combined with reconciliation act changes made by Congress in 2007 and the Democratic need to build government programs, essentally "killed" the traditional student loan playing field.

What we are missing, though, in either program,is the continued focus on defaults by students and the blame being placed on the lender, school or servicer. The servicer has no control over who was awarded the student loan nor does the school. It is true lenders could set some restrictions but most do not. In a government program, if you qualify (i.e., going to school at least half-time), you are entitled to receive the maximum amount of funds. There is no credit check nor is there an evaluation of how much the student already owes and to whom.

Why does it then come as a suprise when students default on their loans? Students lack a credit history, use credit cards to maintain their lifestyle, and are not experienced with financial matters (their parents probably are not as well, and that compounds the problem). Financial literacy is woefully lacking in our middle and high school curriculum. College is too late for a young adult to learn about money.

I wonder if anyone else see a comparison of student loans to the housing crisis? Mortgage loans were taken out by homeowners who could not afford to pay back the loan. And, as of July 1, 2010, the Federal government (i.e., you and me as taxpayers) will be making those loans directly to students. All of the defaults will be falling on our shoulders. No middle man to blame for the defaults although the schools may find they are now the primary scapegoat.

Since we will continue to provide funds to students, let's choose not to blame the school or servicer for the high default rate. Let's place the blame where it truly lies: the lender who provided funds to a less than creditworthy borrower. However, if we choose as a society to continue to fund education with loans instead of grants, this is just a cost of doing business and we should accept it.