As the amount of student loans outstanding continues to rise, taxpayers are more on the hook as the Obama administration continues to expand loan repayment programs. As long as President Obama is in office, we are unlikely to see serious reforms that rein in the growing student loan bubble, which has inflated the cost of attending school without a commensurate increase in the value of a degree.
Many observers have compared the student loan bubble to the recent mortgage bubble, which inflated home prices under government lending mandates to borrowers with weaker credit profiles. Similarly, the government lends to student borrowers without differentiating pricing based on their school, major, or likelihood of repayment.
As student loan delinquency rates rise, it’s clear the government has done an abysmal job of educating students about their options for repayment, refinancing and overall financial literacy. Fortunately, the private sector has filled this gap through various technology platforms that are helping students fight back against mindless lending by unfettered government bureaucrats.
The website LendKey is a cloud-based technology platform that allows student borrowers the chance to directly interact with more than 260 financial institutions, often community banks and credit unions. Just over a year ago, LendKey surpassed $500 million in student loans originated through its platform, no small feat.
Similarly, the sites Achieve Lending and Credible act almost like an Orbitz or Kayak of private lenders, allowing borrowers to search through a broad swath of lending packages. Because of its breadth, LendKey’s refinancing options are often priced relatively low, a boon for the student borrower.
At Student Loan Hero, students can use a free service to maintain their student loans, including reminders on bill deadlines and offering recommendations on better loan management and consolidation.
This list of student loan FinTech firms could stretch on; the important consideration is that in spite of government binge lending, students are empowering themselves with private-sector solutions to make college an affordable and manageable proposition.
In the longer-run we need a president that understands credentialing does not equal learning. In the future, our current approach to college, a static, four-year bachelor’s degree, will seem an antiquated relic in the new economy. We have already started to see the rise of massive online open courses (MOOCs), which have the ability to revolutionize educational offerings by democratizing their reach. We see this through edX, a consortium of free online courses from elite institutions such as Harvard, Berkeley, and the Massachusetts Institute of Technology.
As the world continues to lift billions of people from starvation-level poverty through capitalistic enterprise, we need to extend this nimble, technologically savvy approach toward educating billions of people who can then better invest in their own self-interest. Creaky old university systems will fight this human advancement. Our current approach to education in the United States is instead burden the taxpayer for instruction that can largely occur cheaply online on a massive scale. It will be exciting to watch how these reforms can continue to unfold through private sector involvement and human ingenuity.
Stay tuned this week for more examples of human achievement in the lead up to CEI's annual Human Achievement Hour, Saturday, March 28, 8:30pm - 9:30pm.