So let's recap:
We start with an impulse that is part and parcel of the American dream. Well-meaning federal policy is then promulgated to encourage the pursuit of that dream, largely by means of government-guaranteed loans. The availability of that funding creates a sort of moral hazard. Enter well-meaning and not-so-well-meaning guys who encourage–fairly or fraudulently–lots of folks to take advantage of those loans so that the not so well-meaning guys can make a very large and very fast buck. Many (or most?) of the citizens who take that loan money really don't understand what they're getting into, and many of them (if we are honest about future potential earnings) shouldn't be dreaming that dream in the first place. The demand created by the availability of those loans drives up the price of the dream; and then defaults increase precipitously.
[Related Story: Defaulting on Private vs. Federal Student Loans]
It's a bit like the real estate bubble, no?
If the interest rate on student loans is doubled this summer, the camel's back will break and we will be facing yet another large-scale crisis like the one that crippled the economy in 2008. There are a lot of people who want a college education for themselves or their kids–as there are a lot of people who want to own their own home. In the glare of hindsight they couldn't afford it. But because they already paid for it with government-guaranteed largesse, one way or another it will become the taxpayers' burden, unless perhaps the government does something to regulate how much a college education can cost.
Adam Levin is chairman and cofounder of Credit.com and Identity Theft 911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.