While it’s hard to imagine anyone could profit from the enormous levels of student loan debt the United States currently faces, plenty have found a way.
Every year, tuition costs rise for high-school graduates seeking higher education, not counting other expenses related to academics like textbooks. It’s from those costs many seek out student loans, either from the Federal government or private lenders. Both look to make back what they loan through interest rates and student potential, typically within a ten-year period.
However, due to defaults, individual financial problems, and other life changing factors, graduates don’t often hit that time-frame. Yet, despite the decline of repayment potential and continuously increasing costs, almost everyone involved in the student loan process profits (save for the student).
Originally, student loans were handled primarily by the Federal government. Fast forward to the early 80’s and soon loans were contracted to various private organizations. Companies like Sallie Mae handled the loan process on the government’s behalf, and with it, made financial gains through their own policies, fees, and interest rates.
For several decades this type of business exploded until it reached the focal point of debt we have today. Student loan debt accounts for the highest type of debt in the United States, and is quickly growing in cost. It outpaces even auto loans and credit card interest rates in terms of cost.
Part of this arose from companies like Sallie Mae shifting from Federally monitored to private organizations. Once these loaners became private companies, their goal was to collect on each loan as aggressively as possible. This was the case regardless of a graduate’s individual situation, as private organizations did not have regulations to follow.
The process has continued as private lenders guarantee a certain return amount to their investors. For instance, Sallie Mae made profit headway as it was able to promise a lump sum of financial gains to its investors, who originally helped fund the loans to give out. As a result, many Americans found themselves under incredible financial pressure, in some cases leading to default. This, again, has contributed to the near $1.3 trillion debt total of student loans.
Over the years, this has formulated into the private student loan industry, which has remained profitable over the years. While it varies based on the organization, private loaners often loan amounts with interest rates to those who may not be able to afford repayment. This isn’t even considering the flourishing student loan consolidation and refinancing industry.
This has also lead to a need for higher loan amounts. Stagnating wages, the slow dissolve of the middle class, increased cost of living and less investment towards public universities means the rate of new loans grows each year. The ability to afford tuition costs out of pocket is simply becoming too difficult for the average student, lending to the growth of private loans.
Even with an expanding Federal loan program with generous ways to repay, educational costs continue to rise. In some cases, students feel they have no choice but to utilize private lenders, thus deepening the hold privatized loaners have in the Wall Street market.