I continue to be surprised by the unwillingness of people to place the blame for mistakes with those who actually made the decisions. This NY Times author tells the story of a NYU graduate (with degrees in religious and women's studies) who is nearly $100k in debt purely from student loans. She now works as a photographer's assistant making $22/hour (note this has nothing to do with her majors). The author seems to dismiss the student and her mother from fault in what has clearly been a mistake in choice of school and major. There were many cheaper options and many majors providing better opportunities for job potentials (let's face it, there does not seem to be an overwhelming demand for religious and women's studies graduates). Sallie Mae is also given a pass by the author. This leaves the University's financial aid department and the private lender (Citi in this case) as the culprits, according to the author. I partially disagree.
The job of any business (including universities) is to make a profit (the measure of how much wealth the company has added to society). If a student is able to find funding, either through personal savings or through loans, and if that student is willing to pay the tuition (and meets the school's enrollment standards), then it makes sense for the school to allow that student to take classes. The student and his/her family is in a much better position to gauge their financial situation anyhow (non-tangibles such as determination, drive, personality, etc. matter for long run earnings and the school officials have no measure of this and never will). Now, if a larger than normal percentage of students attending a school ultimately face financial hardships, the market will work this out and demand for that school will dwindle and the tuition will have to come down and enrollment standards will have to come up (and faculty, staff, and admin size must also fall).
If Citi and other financial institutions continue to make large and overly risky loans to students who will really not benefit financially from higher education, then they too will suffer in the long run, and they will modify their lending practices. Given bankruptcy laws regarding student loans, these loans are generally not viewed as risky as many other loans as they are difficult to avoid paying back. But, if a high proportion of the borrowers end up making a mere $2,600/month after their 4 year degrees, the lenders will only very slowly receive their money back, at best. These lending practices will change and I believe they will change soon (more on that below).
The primary blame for massive student loan debt is with the student (and family, if it is a family decision--and it's not always a family decision as many seem to assume it to be). People seem to think that they are entitled to a large salary just because they went to college. Nevermind the fact that they put forth zero effort beyond building up a solid alcohol tolerance and rote memorization (which remains in memory for all of the 12 hours leading up to the exam) and that the student put no thought into the choice of major in regards to job potentials upon graduation. These thoughts simply don't matter...they are entitled to high salaries. Well, they think they don't matter....that is until they graduate and a harsh reality sets in. Those students who have thought about their career goals, their desired standard of living, the true quality of the education (not the hype), and the cost effectiveness of their college selection are the students who generally have no problems paying back loans and living comfortably. Unfortunately, from what I have seen, these students are becoming the minority. In our environment of gov't handouts, the number of those expecting to be entitled to excellent job prospects upon graduation are growing.
The problem will only get worse as our President encourages (through increased efforts of Sallie Mae and other gov't programs) more and more people to go to college, as if simply getting a degree (any degree) will suddenly make these individuals more productive and useful to firms and to society. While I appreciate the increased demand for my services that these programs create, this is not a sustainable situation. As more and more graduates struggle to pay back student loans, lenders will become more frugal with their funds (as they should) and banks will become wiser with their choices of whom to give loans (as will companies paying for continued education and MBA programs for employees). I suspect the first institutions to face these problems will be the on-line degree programs, technical schools, community colleges, high-priced private schools, and many smaller MBA programs. Many of these institutions will fold, I believe. Large state schools will likely be spared, although they too will face hardships and will need to become more efficient (or receive increased funding from the state, which will further burden the general taxpayers).
The higher education bubble has been growing for years, and it is soon to reach its breaking point. Lenders will soon modify their student lending practices such that they are more confident of on-time repayment. This will likely include being more selective by institution and possibly by major (although the latter may be difficult to monitor and enforce). Fewer young adults will be able to afford the college education. This may sound like a bad thing, but it is not. If attending college does not lead to sufficient additional income to more than cover the cost of that education, that person should not attend college--their time is better served entering the labor force immediately out of high school.
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