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?