In the post-Great Recession United States, getting qualified for a home loan is becoming a lot more difficult than it used to be.? Banks are weary to lend money, and new federal regulations require more careful development of mortgages.
Buying a house is more difficult, but consumers are much less prone to end up falling behind on their own mortgage.? Many of the tough lending lessons learned during the past decade does apply to student loans.
Lesson Number One: Don’t encourage risky lending.
Before the mortgage crisis, sub-prime loans were the rage.? Borrowers were advised they might get low introductory rates, when the rate increased to levels they couldn’t afford, they could make use of the equity that they built up in their house to refinance.? The system worked great, so long as housing prices grew even larger.? Meanwhile the lenders who have been creating these risky mortgages were packaging them up and selling your debt to third parties.? They kept the earnings, and passed on the danger.
Today we have seen very risky lending happening in the realm of student education loans.? Borrowers from for-profit colleges rack up hundreds of thousands of dollars in student loans toward degrees with weak employment prospects and low earning capabilities.? This same sort of borrowing, thought to a lessor extent, occurs at other schools.? We all know somebody that majored in fine arts or philosophy who now spends their time being employed as a barista and complaining about the employment market.
The issue is that lenders don’t have any incentive to limit these risky loans.? Borrowers don’t have any meaningful chance at bankruptcy, which is simple for lenders to market loans with other lenders.
Lesson # 2: Artificially High costs mean trouble.
In the months leading up to the great recession housing prices were at record highs.? Looking back, now that we know why… the lending environment flooded the market with money and drove up prices unreasonably high.
Now consider the price of a higher education.? During the last 4 decades, starting about the time bankruptcy protections were peeled from student loans, the price of college has grown at rate far more than inflation.? One rational explanation for the absurd growth in college prices is that the ease of getting student loans has allowed colleges to improve prices at will.
Lesson Number Three: Borrowing and lending can be achieved responsibly without depriving opportunity.
Buying a house is not a privilege restricted to the wealthy or even the elite.? Among the basic tenants from the American dream is the fact that through effort, you can now save a buy a house.? Our laws and our tax code reflect this ideal.? Similarly, an education is a key part of the American dream.? The current student loan system was created to ensure that all Americans, not just the wealthy, might get an excellent education.
Though getting a home is harder than it was once, nobody is arguing that it’s now something which only the wealthy can afford.? Instead, it is something that can only be done with the right planning.? Perhaps student loans should be the same manner.
But how do we fix student loans and the inflated prices of school without limiting opportunities for higher education?
Here a couple possible solutions…