Get ready for the loan bubble

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As a recent graduate from university life, student loan rates hit close to home for my immediate social circles. Not only are most of my friends still in school and struggling to make ends meet with financial aid, but members of my immediate family are also experiencing the frustration of spiked loan rates that have come with recent legislation.

But the main problem with the doubling of student loan interest rates is not, in fact, the recent increase, but is instead the belief that the government should have given promises of unbridled education assistance in the first place. While education will always be a cornerstone in a free-thinking and developed country, the cost of it has inflated exponentially over the past 30 years.

According to the National Center for Education Statistics, for in-state tuition at a school like the University of Nevada, Reno, the cost is close to $7,000 per year, whereas out-of-state tuition and private universities can be somewhere between three and seven times more expensive than that. While an inflation rate is natural, the question remains: What are we paying for that costs so much money?

Naturally, demand is a large factor. With the job market still struggling to make a comeback, many students flock to school with the intention of making themselves more marketable as employees. Such an influx makes banks and the federal government salivate at the potential interest that can be accrued over the course of several decades, despite the early, pre-re-election attempts of President Obama to reduce the cost of education to students.

The main issue with the government-backed student loans, however, is that these loans have created an education bubble. Both Stafford loans and private bank loans are given to essentially anyone who applies, and this has inflated the cost of education overall. On an individual level, even if a person was to declare bankruptcy later in life, his or her student loans will still stick. Therefore, banks can make risky loans to students because they know that the government will still back those loans. In addition, with the ease of loan dispersal, students feel less of an incentive to choose degrees that will allow them to easily pay back their student loans and may instead choose programs with less job security.

Unlike 30-50 years ago, it’s nearly impossible for students today to graduate on time without the assistance of student loans or military grants. While scholarships can be a viable answer for some students—particularly those who are eligible for need-based financial aid—the majority of students can’t rely on scholarships and grants alone. So not only are loans necessary to achieve academic goals, but the costs of those goals are increasing as a result of government-backed loans. Like during the housing market crisis, prices are rapidly inflating, but people who aren’t particularly good loan candidates are still getting them because banks know that if borrowers default, then the government will bail them out.

Pursuing higher education is a valuable endeavor and can definitely result in a higher quality of life in the long run. For many, loans are the only way to afford an education. But the ease of receiving government loans is a double-edged sword that both expedites the process for people with solid career prospects and encourages risky behavior by making it easier for students to get degrees that won’t necessarily be valuable in the job market. While the increase in student loan rates is a hardship for most, what may be an even greater hardship is the difficulty of making ends meet later in life, when crippling student loan debt prevents individuals from getting what they want from their careers.