[Porsche-O-Phile]

The current federal student loan system is a kickback to banks - nothing more. There is little political will to rein in higher education costs since (1) having a higher percentage of the population "college educated" is a great political talking point and (2) more expensive means more money owed to the banks, who in turn own the politicians. From their point of view, no problem.

Federal student loans are ZERO risk to the lenders. Nada. None. They cannot be discharged in bankruptcy (unless the beneficiary is permanently disabled or dies, and even then sometimes another party like a spouse can be hooked for them, or the person's estate, or both). If someone defaults, they will most definitely employ all the "nasty stuff" (wage garnishments, withholding of any tax refunds, etc.) to satisfy the student loan holders (I know a couple of people this happened to). The student loan holder gets priority over all other creditors - even before alimony or child support (again, I know a couple of people this happened to). Failing all that, if there's no more money to suck out of the defaultee, the federal government steps in and pays it to the bank. There is NO RISK to the lender and NO POLITICAL WILL to keep costs (loan amounts) down as a result.

This is simply a consequence of the realities of our system - that politicians only care about reelection, that the best way to be reelected is to have a lot of money behind you, and that the best way to have a lot of money behind you is to sell out to big money interests, like lenders (banks).

NOTHING, I mean NOTHING will be done to fix this problem for the above reasons. Costs will continue to soar, loan amounts will continue to soar and default rates will continue to climb for as long as our economy is held in check by government meddling, regulatory paralysis and the uncertain business environment created as a result. The only way something will be done is if/when the default rates start threatening the lenders (i.e. they can't draw blood from a stone through collection efforts) and they have to tap government reserves on a massive scale ("bailout") which finally gets attention on the issue.

Mark my words, the next big bubble to pop (and the next round of humongous, "too big to fail" bank bailouts) will be over federal student loans. No question in my mind whatsoever.