College financing puts the cart before the horse

I caught this one in the Washington Post, entitled, “As college costs rise, loans become harder to get“.

They must be kidding.

Back in the day, and again this would be the 1980’s, most students who attended four-year schools did so with some help from the federal government, usually 1965 Higher Education Act loans or grants. One was called the “Guaranteed Student Loan”, or GSL, that now is the Stafford. I think the Pell Grants always had the name. Then, there was another one called “National Direct Student Loan” that might have started around the time of Sputnik (1958). This is today’s Perkins.

Usually if you got accepted to a four-year school, you also were presented with a “package”. This was the mix of grants, loans and scholarships you could be expected to obtain to pay your way. Plus work-study.

The idea of taking out loans to provide money that had been freely given in the 1960’s and ’70’s was a bit much. When the Baby Boom hippie generation was going to school, cheap college was treated as if it were a God-given right. Then, suddenly, after they all graduate, it was “we just can’t afffffffforrrrrrrd it!”

Somewhere along the way, Congress let private industry onto the scene. I think this came first with the privitization of Sallie Mae, and then later when the whole pack of Big Lenders (and Big Education) saw a new market and financing source, respectively.

So what looks to have happened is that the contemporary financial aid package now contains, as part of Expected Family Contribution (EFC), an amount that the school expects you to go borrow from a private lender.

Good heavens!

In America’s post Housing Bubble, nearly everyone agrees that the reason housing prices kept going up and up had to do with the amount of financing that was being made available to bid up the prices of homes that clearly weren’t worth the price. There’s really no argument about it. Instead of 20% down, mortgages were given with 0%. And terms were made favorable in the early months or years so that deals would be sealed. (Only to become a big mess later.)

So how is this wacky college financing system any different?

First, the federal government gave money to start colleges (1860’s). Then came the GI bill (1946). After that, the nowadays Pells (1960’s?), Perkins (1958), and Staffords (1965?). In the 1990’s came specific tax credits, the Hope Scholarship and the Lifetime Learning Credit. With each new financing innovation, the price of education went up incrementally. Loan limits went up, before you know it, colleges had the increase factored into the cost of going to the school.

The student is the pipeline carrying the federal, ehem, largesse from the U.S. Treasury or the bank, over to the bursar’s offices of these many colleges and universities. It is almost “make up a number!” the same as what housing had turned into during the Bubble.

So now college costs have risen–in part to the availability of private loans–and we’re to feel that somehow the problem is that the private lenders won’t lend anymore? Particularly after a credit crunch as bad as anyone had seen maybe in the entire post-Depression era?

Why were private lenders even invited in to lend in the first place?

What is it about college that made in so much more expensive, even in just 30 years?