Subprime Mortgage Crisis? Student Loan Crisis?

MSNBC has this article: Pricey student loans sow seeds of trouble.

While scholarship, grant money and government-backed student loans — whose interest rates are capped — have taken up some of the slack, many families and individual students have turned to private loans, which carry fees and interest rates that are often variable and up to 20 percent.

Consumer prices on average rose less than 29 percent over the past 10 years while tuition, fees, and room and board at four-year public colleges and universities soared 79 percent to $12,796 a year and 65 percent to $30,367 a year at private institutions, according to the College Board.

Meanwhile, complaints about marketing of private loans — like ads promising to approve loans worth $50,000 in just minutes — are on the rise. The complaints have made their way to lawmakers, who see a need to regulate the highly profitable and diverse group of companies and the loans they make to college students.

In other words, available government loans is not able to keep up with the increase in student tuition in the past years, forcing students to turn to private loans that have some very hefty interest rates.

“College students, you need a large sum of money for school? And have little to no credit? No problem! We will still give you the loan. (But we will take back a lot more from you later, in the form of interests, yeah!!)”

Wait…have I heard this before? I think this sounds similar to what they did in the subprime mortgage sector. Not only will students carry a bigger amount of debt out of college, they will also carry those debt at a much higher interest rate. This will clearly bring their monthly loan payment to double, triple, quadruple… than what their previous generations had to pay. And since I doubt future salary can increase at such a joyous rate, this gives birth to the question on how the future generation can afford their loan payments graduating from college. If they cannot afford them, they are going to start to default… oh crap…

And wait…have I heard this before? I think this also sounds similar to what’s going on in the subprime mortgage.

Despite this being pure speculation that I draw and agree with such a comparison from the article, I really wonder what are these people thinking? Is making instant or quick money all they care about now?

In short-term definitely, they will reap some heavy profits with the high interest rate, and probably packaging these loans to sell as collaterals also.

Now in long-term, I don’t know if it looks so good anymore, and I would say worse than what may happen in the mortgage sector because the people they screw over this time will be the whole future generation. Not only will all the investment and hedge-funds base on these student loans crash. These are the people who will be future consumers, the entire or majority of the population, unlike the subprime population that makes up a much smaller percentage.

So what these private loan companies will end up doing is crippling the future population’s spending power with these loans and probably destorying a good portion’s credits. Without spending power and credits, they can’t buy houses, they can’t buy services, they can’t buy consumer goods… Let’s see such a economy will work out then.

Again this is pure speculation and albeit pessimistic, I can’t help but see the resembling occurrence between the student loans and subprime mortgage. It seems like these people are just moving sector to sector aiming only to make a quick buck and to get instant gratification with no caring about other people’s lives. Where is their sense of decency and compassion? I don’t see any. They are now targeting 17-20 years old with little life experience and will probably make their life experience a sad and painful one before they have a chance to start it. I would rather live poor than having to sell my children’s life away like that, but actually in my standard, I would consider myself living rich the way I choose to live.

I sure hope they are ready for such a future.

Originally posted 2007-10-03 01:47:08. Republished by Blog Post Promoter

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