The student loan industry rakes in $85 billion a year, and a significant sum of that is in government subsidy and tax considerations. Proponents argue that student loans increase the number of students who can attend school, but critics worry that excess profits raise tuition and leave graduates with heavy student loan debts.

I’m pretty convinced that the effect of federally backed and regulated student loans over the decades has managed to get more students into college, while at the same time creating an unsustainable cost of tuition that threatens to keep students from attending in high numbers in the future. The resources are available for undergraduates, but there is little assistance for the graduate students and Ph.D. candidates who would be needed to keep up with that ever-growing undergraduate population.

I’ve done some political analysis for the student loan industry so I’ve been following the most recent legislation that will slash lender subsidies and put limits on how schools are allowed to market for loan companies. I don’t think many lenders or universities will be subject to criminal or civil liability, so long as they quickly come to compliance with the new laws. These laws would require colleges to have at least three lenders on any preferred loan list and it will cap interest rates on subsidized loans, but conflicts of interest between schools and banks will still exist. If anything, the law just adds government interests into this cozy, corrupt arrangement.

The real effect of the Student Loan Sunshine Act is the limit on subsidized loans: with student loan interest rates falling to 3.4% in a general economic climate of inflation, there is no incentive for banks to pursue sales without government subsidy. With subsidies slashed in the same bill, no profitability will exist in the subsidized loan business and the government will be forced to take on more direct loans. The banks will focus even more on selling private loans with uncapped interest rates, more lenders will find their way into the schools’ preferred lender lists, and more students will likely be subject to high pressure sales, commercials, and other advertising for expensive loans. Student loan companies will diversify to focus on student credit cards, cash advances, and other loan vehicles that carry traditionally higher interest rates.

Even as I was looking for good resources that expanded on this topic, I had a hard time finding recent links that weren’t blatant advertisements designed to drive sales to private student loans! I see Google has even chosen to install some on this site since I’m writing about it.

Official interest rates are down, but there’s still a “credit crunch” in effect so the rates on loans are holding steady or even rising. Students are riskier than most mortgages, because not everyone will get through school and not everyone will find a job that pays for maxed out loans or a premium education that isn’t aided by scholarships and grants. A lot of students see a huge credit limit and suddenly think they can afford $50,000 a year without taking a job or securing additional financial aid – this is a bad plan because it typically ends up with bankruptcy!

Demand for a college education is constantly rising – and the cost of a college education is going up even faster than that.