The impending student-loan crisis proves Edmund Burke had a
point: "Those who don't know history are doomed to repeat it." Though
the economy has not yet recovered from the 2008-2009 mortgage crisis, the
federal government has kick-started its next experiment in making something
more affordable. This time, instead of homes, the "something" is
college. Despite being different major life purchases, it's irresistibly easy
to compare the two.
We
all know how the mortgage story goes: Misguided government incentives and
inadequate lender underwriting led many borrowers to borrow more than they
could afford. When the bad loans couldn't be repaid, numerous lenders folded,
good people lost homes, and our economy to this day still sputters.
Fortunately, we still have time to mitigate the unintended consequences of
overbearing government involvement in student loans.
Federal student-lending programs account for roughly 93 percent
of all loans in repayment, or $1.17 trillion. This leaves a mere $91 billion,
or 7 percent, with private lenders. Granted, the federal government has an
essential role in the student loan market, but this lopsided share is
problematic to students for a number of reasons.
First,
private student loan
arguably have the strongest consumer protection: a robust underwriting process
that includes an ability-to-repay test. Government loans are subject to the
Department of Education lending rules that don't require such a test.
Second,
private student lenders—again unlike the government—are required to provide
comprehensive disclosures of terms, conditions, and full life-loan borrowing
costs—i.e., at application, approval, and consummation—and to tell students and
families about federal aid programs' terms. In fact, throughout the loan
process, private lenders are required to provide 18 different disclosures,
three different times.
Source :
| http://educationloansinindia.weebly.com/education-loan/how-to-fix-the-student-loan-mess |
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