Student loans, while might help students obtain an education, are inherently part of a capitalistic system whose primary objective is generating profit for their investors. American consumers owe more than $150 billion in outstanding private student loan debt (department of education report). Some students who graduate with enormous amount of none dis-chargeable student loans are effectively in an indentured servitude to these institution.
Student loan financing is fueled by investor appetite for asset-backed securities. The financial institution private student loan market grew from less than $5 billion in 2001 to over $20 billion in 2008. From 2005 – 2007, lenders increasingly marketed and disbursed loans directly to students, reducing the involvement of schools in the process; indeed during this period, the percentage of loans to undergraduates made without school involvement or certification of need grew from 40% to over 70%. As a result, many students borrowed more than they needed to finance their education. Additionally, during this period, lenders were more likely to originate loans to borrowers with lower credit scores than they had previously been. These trends made private student loans riskier for consumers and more profitable to creditors who have banked heavily on the fact that student loans are not discharged in bankruptcy.
After 2008 lenders rapidly increased the share of loans with a co-signer, from 67% in 2008 to over 85% in 2009. Creditors preyed on the uninformed parents to further secure their capital investment. In 2011, over 90% of private student loans were co-signed.
Many private student loan borrowers did not exhaust their federal Stafford Loan limits before turning to the private loan product. Some borrowers reported that they did not know they had fewer options when repaying their private student loans than they did with their federal student loans.
The private student loan industry is not some benevolent institution for providing opportunity to education, they are a money making machine whose sole objective if profit. They do not deserve any special protection that may be available to the federal student loan system.