First, colleges don't generally give loans. The lenders are not affiliated with the college.
Second, as with anything it is more complex than you are making it. For example, I've known people who have:
- Had a variable interest go up with little to no notice and no adjustment to the payments so if you're not paying attention month to month you end up underpaying.
- Been put in deferment without notice (so their payments stopped) and without requesting it, but continued to accumulate interest.
- Interest is sometimes compounding while in deferment or paying less than interest.
- Were mislead about how interest accumulated while they were still in school (i.e. lead to believe there was no interest when in reality there was just "no payments")
And in that last one in particular, the person I know in that situation (happened to be married to her now), it was her boomer parents that signed the loan paperwork and they didn't even give her access until after she graduated when she found out interest compounding that whole time.
I think the whole debate is putting too much on 17 kids and not enough on their parents who need to co-sign these documents. When I was that age the school didn't tell me how interest worked, my parents did.
I am not saying it is simple. And yes technically the lenders are separate but the incentives align them so the effect is the same as if they weren’t.
As examples:
- loans are given equally for an English major and an electrical engineer. No market force at play here.
- Interest rates are the same as well even though the risk of default is not the same across majors
- Your interest rate remains the same for subsequent years even if you get a 2.0 your first year.
- College tuition rises in lockstep with additional Federal grants and loan programs
Also, I am not saying there isn’t bad or unscrupulous behavior by lenders but the default case is poor money management and a faulty understanding of interest. I think this fault lies with the student, but also the government allowing its lenders and institutions to prey upon their youth as well as allowing high schools to graduate students without this basic understanding.
Second, as with anything it is more complex than you are making it. For example, I've known people who have:
- Had a variable interest go up with little to no notice and no adjustment to the payments so if you're not paying attention month to month you end up underpaying.
- Been put in deferment without notice (so their payments stopped) and without requesting it, but continued to accumulate interest.
- Interest is sometimes compounding while in deferment or paying less than interest.
- Were mislead about how interest accumulated while they were still in school (i.e. lead to believe there was no interest when in reality there was just "no payments")
And in that last one in particular, the person I know in that situation (happened to be married to her now), it was her boomer parents that signed the loan paperwork and they didn't even give her access until after she graduated when she found out interest compounding that whole time.
I think the whole debate is putting too much on 17 kids and not enough on their parents who need to co-sign these documents. When I was that age the school didn't tell me how interest worked, my parents did.