College finance writer Zac Bissonnette gives another take on the news yesterday that student-loan defaults are not as hard on the government as one would think, considering the feds end up getting back 85% of the money loaned:
When lenders don’t end up suffering losses on loans that are excessive, they lack any particular incentive to lend responsibly. Why worry about a student borrowing too much for a bachelor’s degree when the debt can’t be discharged in bankruptcy — and you can garnish the borrower’s wages for the rest of his life while tacking on interest and fees?
The lack of a large government loss leads to too many loans, and, as others have said, yet another consequence:
Colleges don’t care because easily available borrowing smashes the natural ceiling on college affordability — and allows colleges to continue raising prices at breakneck speed.
About the blogger
Alex Friedrich reports on higher education issues for MPR News. Among the stories he has covered: the fall of the Berlin Wall, aftermath of Hurricane Katrina, collapse of the I-35W bridge in Minneapolis, 2003 Moscow suicide bombing and 2004 presidential elections in the Republic of Georgia. He holds a bachelor’s degree in journalism from the University of Georgia and a master’s in European political economy from the London School of Economics.