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Student loans: The new cheap money?

By Steve Bucci · Bankrate.com
Monday, March 24, 2014
Posted: 3 pm ET

The Wall Street Journal recently reported that student loan debt rose 12 percent in 2013 to $1.08 trillion. Big student debt numbers are hardly news anymore. What interested me was that much more of the debt was taken on by students with poor credit scores than those with good credit scores.

If this sounds a bit like the housing market before the crash, it may be because it is. The same players are doing the same thing, and I'm not optimistic that the outcome will be any different. Cheap loan money is being made available to those who wouldn't otherwise qualify.

Let's look at the new borrowing breakdown: Of the reported 12 percent increase in student loan debt, only 1 percentage point came from students with a 720 to 780 credit score. Those with scores above 780 didn’t increase their debt levels at all.

It makes perfect sense that students with low credit scores are dominating federal loan programs. It also makes sense that the financially ignorant will borrow more than they can repay. This doesn't indicate a low IQ. Rather, it indicates a person who is overly optimistic or clueless. It smacks of someone who's just signing up for whatever free money comes along.

College students need to be better educated about the risks they're accepting when they apply for those loans. They need to understand that they may be overpaying for their diplomas, and that their credit could take a serious hit if they fail to turn that education into a good-paying job.

What do you think?

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9 Comments
jjj
April 10, 2014 at 11:06 pm

Kevin - it's probably because you chose a profession that only takes a year of schooling. Most of those schools hand you a certificate that anyone can get without schooling.

Kevin
March 25, 2014 at 5:35 pm

I do find it rather annoying that most of these article's focus on what the "student" did wrong and not the schools huge part in all this. I had a job developer at the unemployment department tell me that she checked to see how many Medical Insurance Billing and Coding students graduated and how many actually got a job in the Medical industry let alone in the MIBC field. 1750 grads,450 got jobs, none of them did any billing or coding. If you can find an opening, you will start as a secretary and office go-fer and learn as you go. Well then why do I have to go through a yr of school and put myself in debt, just to be trained on the job anyway? Only a third of grads got a job and even if all 450 started coding that's only 1/3 with success and 2/3 with debt and no job. The schools know this and yet are still allowed to sign people up making promises up one side and down the other full well knowing that 2/3 will be wasting time and effort for more then likely nothing but useless debt. What a system.

Kevin
March 25, 2014 at 5:21 pm

One of the big problems that has been a problem for decades is that the for profit schools have no oversight or accountability at all which makes it easy for them to make promises they can't keep and over exaggerate the schools capabilities. So you end up with debt and nothing to show for it, it's usually after the fact before you realize you've been had and of course by then it's to late and now your on the hook to pay for something you got nothing out of. I am sick and tired of being lied to and misinformed especially when this scam is backed by the Gov. and no one seems to care. It's a slap in the face to those of us that did what we were told to do in an effort to "improve our lives" only to learn the hard way that we got taken to the cleaners with no recourse, it's bs and something needs to be done about it. WalStreet big shots and bankers can tank our economy and be the cause of thousands losing retirement funds and their homes, but they all walk while we get stuck paying for something we got nothing out of, geez these schools don't even have to teach you anything just read the fine print on the note you sign, it's a huge ripp off and unfair.

gradgirl
March 25, 2014 at 11:29 am

The previous comment is missing the point of the article. Too many students (and their parents) currently taking out loans are not educating themselves regarding the terms of these loans or the return on investment of the college or their chosen major. It seems that there is little discrimination regarding the cost of private colleges versus state and community colleges. Many students seem uneducated about how much debt they rack up (and what those monthly payments will be) and the current job market in their chosen area of study. While in college, I saw many mediocre students rack up over $175,000 in loans in majors that have virtually no job offerings. When they couldn't find a job upon graduation, they took out more loans and went to grad school!

It should be noted that not everyone SHOULD attempt to get a college degree. Not everyone is college material, rich or poor. In many cases it may be wiser to get a low level job out of high school and spend those 4 years getting experience compared to the college grad buried in debt for decades. This doesn't even address the growing number of students that take out loans and never graduate.....

cin
March 25, 2014 at 11:12 am

There will always be those individuals who bite off more than they can chew. Unfortunately, they are learning this bad habit way too young.

efultz
March 25, 2014 at 8:28 am

I think student loans are taken out by people who could not, otherwise, afford to go to college. Your article calls them stupid. I disagree and feel your article is written by a person who is either wealthy in their own right and so has no worries or has someone paying their way for them.

College is expensive. Even with financial aid and working it is difficult to pay. You are arrogant to blame people for wanting a better life. Also, students have no real credit score because they have not sufficient history to build up credit scores.

I could not believe what you were writing - put yourself in their place.

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