Why tuition rises when the feds lose little on student loan defaults
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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?
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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.
