I see. it would also read well as Student borrowers only wanted to get in the game because Uncle Sam made SL debt almost impossible to discharge.
But that doesn't make any sense. Why would a borrower WANT to borrow BECAUSE the debt wasn't dischargeable?
Borrowers usually don't care about whether a loan is recourse or not, or dischargeable, and students in particular because most students are stupid---which is why they go to school (with marginal benefit).
Private student lending was lucrative only because the implicit dischargeability of the loans was difficult, reserve requirements lenders had to have for loan loss was insignificant, the demand for the loans is insatiable, and the profit is easy to produce. Win. Win. Win.
Except of course if students just simply refuse to pay regardless of what the Bankruptcy Code says---then you'll become insolvent anyway (Sallie Mae sure did get screwed on that logic).
But the evil argument about SL is way more valid. Students and parents dip into the lending pool simply because the money is there and the college degree is considered your meal ticket into the middle class---it's a requirement for any skilled job these days [yeah you can get 6-figure jobs with just a HS diploma, but it's really tough and you have to work a lot harder at it.]
When you boost student lending and students take out a lot of credit, then colleges automatically raise tuition the moment they figure out that their customers (the students) have access to bigger pools of money. Colleges are greedy too ya know. And competition between colleges to get bigger and have more attractive amenities doesn't come cheap, especially in places like the Northeast were competition to attract students is extremely fierce.
Nobody has figured out how to make colleges compete on price because students and parents do not care about price. Sure parents talk like they do, but if it weren't for borrowings then parents would be forced to look at their kid's choices of universities and make a Cost/Benefit decision that extracts the most value out of the dollar for school.
Do the majority of parents actually do this? I doubt it. Can't tell you how many times I've met an excited parent that had a kid who got an acceptance letter from NYU or University of Pennsylvania, MIT, Princeston, Harvard, etc. A kid going to a top university is a bragging right of any parent. They think about the cost later and the student doesn't start caring until their SL deferments run out and they actually have to start paying the loans back.
If lending was more private and lenders could also force colleges into contracts that direct the quality of education or penalize the student with higher interest rates for taking more riskier education paths that lead to low-paying careers, then maybe university costs wouldn't be so high. It would also put the interests of American business more in line with colleges and make the system more efficient.
Wages are usually driven up by labor shortages. When wages go up it attracts more people to those jobs and colleges would react quicker because subsidized funding would quickly shift around to those career paths, which puts a carrot in front of kids to pick those career paths because they will get more subsidy help to go in those directions. Students who want to go their own way will have to foot more of the bill to go their own way.
Every liberal arts program would probably be in serious jeopardy, but education for everyone would get cheaper and be more baseline as a result.
