I remember cringing as I hit the submit button on a $3,500 private loan application back in January. It wasn't the amount of the loan that was causing the cringing, it was because I applied for a loan with my mother as a co-signer. My mother is a single parent whose income is no match for soaring tuition prices and who is also pursuing a nursing degree at a local community college. Money was tight and I was afraid I was not going to qualify for the loan. But then something happened: I did. I felt instant relief when I received an e-mail saying my loan was approved. But wait. I was thankful I had received the loan but I started to think. The bank obviously felt that either my mother or I could pay back the loan. I remember thinking my mother definitely couldn't, especially when loan payments would come due in less than two years while she would still be in school. The hope was (and still is) that I will be able to find a job after college with an income capable of paying off my loans over an extended period of time.
Then I began to wonder, how much would the bank give me for my education? There are limits with federal loans, but there is not a set limit with private loans as it is dependent on the credit and income of the co-signer. The Huffington Post has been following stories of students graduating in tremendous debt. For students graduating $50,000 or $100,000 dollars in debt, a majority of this money must be coming from private bank loans, as the federal government does not give out student loans of this magnitude. In the direction our country is moving, college is only going to get less affordable and student debt will increase. As students continue to need private loans to fund education, and banks continue to provide these funds, I am starting to wonder if student loans could lead to another economic crisis and an eventual bailout for banks in the future.
The situation seems to be quite similar to the housing market in the few years before 2008. I remember one of my professors telling me he went to buy a house at the turn of the century. He wanted a loan for a $200,000 house, which reasonably fit into his budget as a college professor. The bank said he was approved for a $900,000 loan. My professor was shocked at the loan amount and knew he would not be able to pay the loan back. He decided to stick to his budget and take the loan he knew he could afford. Because students are getting more and more in debt, it is obvious banks are giving more and more private loans. For many students, banks are lending more money than the student will be able to pay back. If this pattern continues it is reasonable to predict many students will find themselves in similar situations as many new homeowners did in 2008.
It does not help that tuition continues to rise. Schools like the University of California and the University of Florida are looking at 9 percent tuition increases. My home institution, the University of Dayton, raised tuition 5.2 percent this year. Yet what choice do students have? Students are stuck. The majority of students cannot afford to pay the sticker price for college. Two-thirds of undergraduates seeking bachelor's degrees borrow money through private lenders or through the federal government. I think about the current balance on my private and federal loans, which I know are going to be a struggle to pay back in this economy, and I wonder what other choice did I have? For homeowners at the turn of the century, many housing loans were a question of living within one's means. When financing an education, there isn't a more reasonable option like buying a smaller house. As universities across the nation are becoming more expensive, education is a necessity that is falling further outside of students' means.
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