Student loans are extremely dangerous things. My brother is considering graduate school, and I tell him not to get in any debt. What is wrong with the student loan industry is far more than the 7% interest rate charged by federally backed student loans. Student loans are far different than most other types of loans. The type of people who get them are different, the reasons they get them are different, and the laws surrounding them are different. I want to talk about it because I have been spending some time trying to figure out how to pay back my student loans. I make a decent amount of money as a CPA at an investment bank, and my loans are not that excessive. And yet they are an enormous drain, because I have little intention on taking the full 20 years to repay them.
Student loans are taken out by people (usually just out of high school) who have no concept of money and no concept of debt. They figure that signing a piece of paper will give them free money. And the distant repayment seems even more distant, since not only do you not have a clue when you will leave school and thus have to begin repaying, but you know that even when you do leave, you will have an additional six months before you have to start repaying.
In addition, people just out of school have the most trouble with employment. Often the degrees people have are not very marketable. Thus people can't find decent jobs, and end up in low paying jobs. This is the point when you should be saving a lot of money, because money saved now into a 401k can be worth a lot when you get close to retiring. On top of all of this, the interest rates charged by private lenders can be as high as 20% (or more in some cases) which is partly the result of the republican deregulation of the industry
When I was studying for the CPA exam, I studied the bankruptcy laws in this country (and this was pre-Bankruptcy bill that became law recently). I learned what many of you already know: student loan debt is one of the few types of debts that effectively cannot be cleared in bankruptcy. So when you take out loans, you will be repaying them until either they are paid off, or you die. I also learned from the CPA exam that the government can cap the amount of interest that companies charge on certain types of debt. These loans are called Usury statutes.
If we have Usury laws in this country, why is it that private student loan lenders can charge some under-employed kid a 20% interest rate on a $100,000 loan? It is good for the company if the loans cause such hardship. They thus will rack up large amounts of interest and fees, yielding even more profit. No matter how high the interest goes, no matter what type of financial shape the borrower is in, and no matter how hard it is for him to make any payments, the companies could care nothing. You can never liquidate the loans, so as long as most people pay their debts back before they die, the companies have no reason to be merciful.